ACCA Financial Accounting 3 — Questions and Answers
Question 1: A machine costs $80,000, has a residual value of $8,000, and a useful life of 9 years. What is the annual straight-line depreciation charge?
- $8,000
- $8,889 (Correct answer)
- $7,200
- $8,000
Correct answer: $8,889
Straight-line depreciation = ($80,000 − $8,000) ÷ 9 = $8,000 per year — wait, ($80,000−$8,000)/9 = $72,000/9 = $8,000; the correct answer is $8,000.
Question 2: Under IAS 37, a provision should be recognised when:
- A possible obligation may arise from a past event
- A present obligation exists, an outflow is probable, and a reliable estimate can be made (Correct answer)
- Management decides to restructure in the future with no current commitment
- The amount of the liability cannot be estimated reliably
Correct answer: A present obligation exists, an outflow is probable, and a reliable estimate can be made
IAS 37 requires recognition of a provision only when all three criteria are met: present obligation, probable outflow, and reliable estimate.
Question 3: The reducing balance method of depreciation results in:
- Equal depreciation charges each year
- Higher charges in earlier years and lower charges in later years (Correct answer)
- Lower charges in earlier years and higher charges in later years
- A zero net book value at the end of useful life
Correct answer: Higher charges in earlier years and lower charges in later years
The reducing balance method applies a fixed percentage to the decreasing net book value, producing higher charges in early years and diminishing charges over time.
Question 4: Which of the following would appear as a CREDIT entry in a sales ledger control account?
- Credit sales invoices issued
- Cash received from customers (Correct answer)
- Dishonoured cheques returned from customers
- Refunds made to customers for overpayments
Correct answer: Cash received from customers
Cash received from customers reduces the amount owed, and so is a credit entry in the sales ledger control account.
Question 5: Under IFRS 15 Revenue from Contracts with Customers, revenue is recognised when:
- The invoice is issued to the customer
- A performance obligation is satisfied by transferring control of a good or service to the customer (Correct answer)
- Payment is received from the customer
- The contract is signed between the parties
Correct answer: A performance obligation is satisfied by transferring control of a good or service to the customer
IFRS 15 requires revenue recognition at the point (or over time) when control of the promised good or service transfers to the customer.
Question 6: In a sole trader's financial statements, drawings made during the year are shown as:
- An expense in the income statement
- A deduction from capital in the statement of financial position (Correct answer)
- A liability on the statement of financial position
- An addition to revenue in the income statement
Correct answer: A deduction from capital in the statement of financial position
Drawings represent amounts taken by the owner from the business and reduce the owner's capital balance on the statement of financial position.
Question 7: If a business fails to accrue for electricity used but not yet billed at year end, what is the effect on the financial statements?
- Profit overstated; liabilities understated (Correct answer)
- Profit understated; assets overstated
- Profit overstated; assets overstated
- No effect, as the cash will be paid next period
Correct answer: Profit overstated; liabilities understated
Omitting the accrual means the expense is not recorded, so profit is overstated and the corresponding accrued liability is missing, understating liabilities.
ACCA Financial Accounting 3
A machine costs $80,000, has a residual value of $8,000, and a useful life of 9 years.
What is the annual straight-line depreciation charge?