ACCA - Association of Chartered Certified Accountants International Financial Reporting Standards Questions and Answers

Question 1

According to IFRS 15 Revenue from Contracts with Customers, which of the following is NOT one of the five steps for revenue recognition?

Accepted Answer

Assess the creditworthiness of the customer.

Answer

IFRS 15 outlines a five-step model for revenue recognition. The steps are: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations; 5) Recognise revenue when (or as) the entity satisfies a performance obligation. Assessing the customer's creditworthiness is part of evaluating the probability of collecting consideration (part of Step 1), but it is not a standalone step in the five-step model itself.

Question 2

A company leases a machine for a 5-year term. The lease payments are $10,000 per year, payable at the beginning of each year. The interest rate implicit in the lease is 8%. The present value of the lease payments is $43,121. The lessee also incurred initial direct costs of $2,000. Under IFRS 16 Leases, what is the initial carrying amount of the right-of-use asset?

Accepted Answer

$45,121

Answer

Under IFRS 16, the right-of-use asset is initially measured at the amount of the initial measurement of the lease liability, plus any lease payments made at or before the commencement date, plus any initial direct costs incurred by the lessee. Therefore, the initial carrying amount is the present value of lease payments ($43,121) plus the initial direct costs ($2,000), which equals $45,121.

Question 3

A company holds inventory with a cost of $100,000. Due to market changes, the estimated selling price for this inventory is now $95,000. Estimated costs to complete and sell the inventory amount to $10,000. In accordance with IAS 2 Inventories, at what amount should this inventory be valued in the statement of financial position?

Accepted Answer

$85,000

Answer

IAS 2 requires inventories to be measured at the lower of cost and net realisable value (NRV). NRV is the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale. In this case, the cost is $100,000 and the NRV is $95,000 - $10,000 = $85,000. Since the NRV ($85,000) is lower than the cost ($100,000), the inventory should be valued at $85,000.

Question 4

Under IFRS 9 Financial Instruments, a financial asset shall be measured at amortised cost if which two conditions are met?

Accepted Answer

The entity's business model is to hold the asset to collect contractual cash flows, and the contractual cash flows represent solely payments of principal and interest.

Answer

IFRS 9 requires a financial asset to be measured at amortised cost if both of the following conditions are met: (1) the asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and (2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Question 5

A cash-generating unit (CGU) has a carrying amount of $500,000, which includes goodwill of $50,000. An impairment review reveals that the recoverable amount of the CGU is $420,000. According to IAS 36 Impairment of Assets, how should the impairment loss be allocated?

Accepted Answer

The loss is first allocated to reduce the carrying amount of goodwill to zero, and the remaining loss is allocated pro-rata to the other assets.

Answer

According to IAS 36, an impairment loss for a cash-generating unit is allocated first to reduce the carrying amount of any goodwill allocated to the CGU. Any remaining loss is then allocated to the other assets of the unit on a pro-rata basis of their carrying amounts. In this case, the total impairment loss is $500,000 - $420,000 = $80,000. The first $50,000 of the loss reduces goodwill to zero. The remaining $30,000 is allocated to the other assets in the CGU.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants International Financial Reporting Standards Questions and Answers