ACCA International Financial Reporting Standards 5

Question 1

Under IFRS 10, when does an investor control an investee?

Accepted Answer

When it has power over the investee, exposure to variable returns, and can use power to affect those returns

Answer

IFRS 10 defines control through three cumulative elements: power, exposure to variable returns, and the ability to use power to affect returns.

Question 2

Under IAS 38, internally generated goodwill is:

Accepted Answer

Not recognized as an asset

Answer

IAS 38 prohibits recognition of internally generated goodwill because it is not an identifiable resource controlled by the entity that can be reliably measured.

Question 3

Under IFRS 11, a joint venture is accounted for using:

Accepted Answer

The equity method

Answer

IFRS 11 requires joint ventures to be accounted for using the equity method, eliminating the option of proportionate consolidation that existed under IAS 31.

Question 4

Under IAS 7, which of the following is classified as an investing activity in the cash flow statement?

Accepted Answer

Purchase of property, plant and equipment

Answer

Purchases of non-current assets such as property, plant and equipment represent investing activities under IAS 7.

Question 5

Under IAS 33, diluted earnings per share adjusts the denominator for dilutive potential ordinary shares. Options are dilutive when the exercise price is:

Accepted Answer

Lower than the average market price for the period

Answer

Options are dilutive when the exercise price is below the average market price, meaning additional shares can be notionally issued at a discount under the treasury stock method.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA International Financial Reporting Standards 5