ACCA International Financial Reporting Standards 2 — Questions and Answers
Question 1: Under IFRS 16, how should a lessee classify lease payments in the statement of cash flows?
- All lease payments as operating outflows
- Principal repayments as financing and interest as operating or financing (Correct answer)
- All lease payments as financing outflows
- Principal as investing and interest as operating
Correct answer: Principal repayments as financing and interest as operating or financing
IFRS 16 requires lessees to present principal repayments of the lease liability within financing activities and interest paid per IAS 7 policy (operating or financing).
Question 2: IAS 36 requires an impairment test for goodwill at minimum how often?
- Every three years
- Only when indicators exist
- Annually, regardless of indicators (Correct answer)
- Every five years
Correct answer: Annually, regardless of indicators
Goodwill must be tested for impairment annually and whenever there is an indicator of impairment, even if no indicator is present.
Question 3: Which method is prohibited under IAS 2 for measuring the cost of inventories?
- Weighted average cost
- First-in, first-out (FIFO)
- Last-in, first-out (LIFO) (Correct answer)
- Specific identification
Correct answer: Last-in, first-out (LIFO)
IAS 2 explicitly prohibits the LIFO method because it does not represent an approximation of actual cost flows.
Question 4: Under IFRS 15, when does a performance obligation become distinct?
- When the customer can benefit from the good or service on its own or with other readily available resources, and it is separately identifiable (Correct answer)
- Only when it has a separate contract price
- When it is delivered before other obligations
- When the customer requests separate invoicing
Correct answer: When the customer can benefit from the good or service on its own or with other readily available resources, and it is separately identifiable
A performance obligation is distinct if the customer can benefit from it on its own and it is separately identifiable from other promises in the contract.
Question 5: Under IAS 21, monetary items denominated in a foreign currency are retranslated at year-end using which rate?
- Historical rate at transaction date
- Average rate for the period
- Closing rate at the balance sheet date (Correct answer)
- Forward rate at balance sheet date
Correct answer: Closing rate at the balance sheet date
IAS 21 requires monetary items to be retranslated using the closing (spot) rate at the reporting date, with exchange differences recognized in profit or loss.
Question 6: An entity adopts a new IFRS standard early. Under IAS 8, this is disclosed as:
- A change in accounting estimate
- A prior period error correction
- Voluntary early adoption with disclosure of the nature and effect (Correct answer)
- A change required by a regulatory body
Correct answer: Voluntary early adoption with disclosure of the nature and effect
Early adoption of an IFRS is permitted in most standards and must be disclosed, including the nature and financial effect of the early adoption.
Question 7: Under IFRS 9, which category requires financial assets to be measured at amortized cost?
- Assets held for trading
- Assets whose cash flows are solely payments of principal and interest, held in a hold-to-collect business model (Correct answer)
- All debt instruments at initial recognition
- Assets designated at fair value through profit or loss
Correct answer: Assets whose cash flows are solely payments of principal and interest, held in a hold-to-collect business model
Amortized cost applies when the asset passes both the SPPI test and is held within a business model whose objective is to collect contractual cash flows.
ACCA International Financial Reporting Standards 2
Under IFRS 16, how should a lessee classify lease payments in the statement of cash flows?