ACCA SP Strategic Business Reporting (SBR) 2

Question 1

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision should be recognised when which THREE conditions are ALL met?

Accepted Answer

A present obligation exists from a past event, an outflow of resources is probable, and the amount can be reliably estimated

Answer

IAS 37 requires all three conditions: (1) a present obligation (legal or constructive) as a result of a past event, (2) it is probable (more likely than not) that an outflow of economic benefits will be required, and (3) a reliable estimate can be made of the amount. If the outflow is only 'possible', it is a contingent liability disclosed in notes, not a provision.

Question 2

A company with a functional currency of GBP holds a foreign currency monetary asset of USD 500,000. At the transaction date, the rate was £1 = $1.25. At the reporting date, the rate is £1 = $1.30. Under IAS 21, what exchange difference is recognised?

Accepted Answer

A loss of £15,385 in profit or loss

Answer

At transaction date: USD 500,000 ÷ 1.25 = £400,000. At reporting date: USD 500,000 ÷ 1.30 = £384,615. The GBP value has decreased by £15,385 (£400,000 - £384,615). Since the pound has strengthened against the dollar, the USD asset is worth less in GBP terms, creating a loss. IAS 21 requires monetary items to be retranslated at the closing rate with differences in profit or loss.

Question 3

Under IFRS 9 Financial Instruments, which of the following financial assets must ALWAYS be measured at fair value through profit or loss (FVTPL)?

Accepted Answer

Equity investments for which no irrevocable OCI election has been made

Answer

Under IFRS 9, equity investments are measured at FVTPL by default. An entity may make an irrevocable election at initial recognition to present fair value changes in OCI (with no recycling), but if this election is not made, FVTPL is mandatory. Debt instruments may qualify for amortised cost or FVOCI depending on the business model and SPPI test.

Question 4

In the Conceptual Framework for Financial Reporting (2018), which qualitative characteristic requires that financial information is free from error, neutral, and complete?

Accepted Answer

Faithful representation

Answer

Faithful representation is one of the two fundamental qualitative characteristics (alongside relevance). It requires information to be complete (including all necessary descriptions and explanations), neutral (without bias in selection or presentation), and free from error (no errors in the process used to produce the information, though estimates are acceptable).

Question 5

Company X issues 1,000 convertible bonds at £1,000 each. Similar bonds without conversion rights would carry an interest rate of 8%. The bonds pay 5% coupon annually for 3 years and are convertible at maturity. Under IAS 32, how should the bonds be classified?

Accepted Answer

Split into a liability component (PV of cash flows at 8%) and an equity component (residual)

Answer

IAS 32 requires convertible bonds to be split into a liability component and an equity component. The liability component is measured at the present value of the contractual cash flows (coupons and principal) discounted at the market rate for similar non-convertible bonds (8%). The equity component is the residual: total proceeds minus the liability component. This is a compound financial instrument.

ACCA Strategic Professional Practice Test

ACCA Strategic Professional Practice Test

ACCA SP Strategic Business Reporting (SBR) 2