ACCA International Financial Reporting Standards 3 — Questions and Answers
Question 1: Under IAS 37, a provision should be recognized when:
- There is a possible obligation and outflow is probable
- There is a present obligation, outflow is probable, and a reliable estimate can be made (Correct answer)
- Management decides to set aside funds for a future cost
- A legal claim has been filed against the entity
Correct answer: There is a present obligation, outflow is probable, and a reliable estimate can be made
IAS 37 requires all three criteria: a present obligation (legal or constructive), probable outflow of economic benefits, and a reliable estimate.
Question 2: IFRS 3 requires acquired intangible assets in a business combination to be recognized separately from goodwill if they meet which criteria?
- They are identifiable (separable or arising from contractual/legal rights) and their fair value can be measured reliably (Correct answer)
- They have been recorded in the acquiree's books
- They are legally owned by the acquiree
- They will generate cash flows within 12 months
Correct answer: They are identifiable (separable or arising from contractual/legal rights) and their fair value can be measured reliably
Under IFRS 3, intangible assets are recognized separately when they are identifiable — either separable or arising from contractual/legal rights — and their fair value can be reliably measured.
Question 3: Under IAS 40, investment property measured under the fair value model is revalued with gains and losses recognized in:
- Other comprehensive income
- A revaluation reserve
- Profit or loss (Correct answer)
- Retained earnings directly
Correct answer: Profit or loss
Under the IAS 40 fair value model, all fair value changes are recognized directly in profit or loss in the period they arise.
Question 4: Which of the following is NOT a component of equity under IAS 1?
- Share capital
- Retained earnings
- Deferred tax liabilities (Correct answer)
- Other comprehensive income reserves
Correct answer: Deferred tax liabilities
Deferred tax liabilities are non-current liabilities, not equity components; equity comprises share capital, reserves, and retained earnings.
Question 5: IFRS 5 classifies a non-current asset as 'held for sale' when it is available for immediate sale in its present condition and sale is:
- Possible within 24 months
- Highly probable and expected to complete within 12 months from classification (Correct answer)
- Approved by shareholders
- Listed on a sales register
Correct answer: Highly probable and expected to complete within 12 months from classification
IFRS 5 requires the sale to be highly probable, with active marketing at a reasonable price and expected completion within one year of classification.
Question 6: Under IAS 23, borrowing costs that are directly attributable to the acquisition of a qualifying asset must be:
- Expensed immediately
- Capitalized as part of the asset's cost (Correct answer)
- Deferred and amortized over the asset's life
- Recognized in other comprehensive income
Correct answer: Capitalized as part of the asset's cost
IAS 23 requires directly attributable borrowing costs for a qualifying asset to be capitalized; all other borrowing costs are expensed.
Question 7: Under IFRS 8, an operating segment must be reported separately if its revenue, profit/loss, or assets exceed what threshold of the combined totals?
- 5%
- 10% (Correct answer)
- 15%
- 20%
Correct answer: 10%
IFRS 8 uses a 10% quantitative threshold for revenue, profit or loss, and assets to determine whether an operating segment must be disclosed separately.
ACCA International Financial Reporting Standards 3
Under IAS 37, a provision should be recognized when: