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Free Questions › CPA › Business Analysis and Reporting
Free CPA Business Analysis and Reporting Practice Questions & Answers
500 exam-style Business Analysis and Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 181
Under US GAAP, the non-controlling interest in a business combination is measured at:
Select an option first.
Correct answer: C — FAIR VALUE (the FULL goodwill method is REQUIRED)
Explanation: US GAAP REQUIRES the FULL goodwill method: NCI is measured at FAIR VALUE, so goodwill attributable to the NCI is also recognised. IFRS permits a CHOICE between full goodwill and the PARTIAL method (NCI at its proportionate share of net assets, recognising no NCI goodwill).
Question 182
A FAIR VALUE hedge records changes in the fair value of BOTH the derivative and the hedged item in:
Select an option first.
Correct answer: B — NET INCOME, where they offset
Explanation: FAIR VALUE hedge (hedging an EXISTING asset, liability, or firm commitment): BOTH the derivative and the hedged item are marked to market through NET INCOME, where the effective portions OFFSET. Only the ineffectiveness shows through to earnings.
Question 183
A CASH FLOW hedge records the effective portion of the derivative's fair value change in:
Select an option first.
Correct answer: B — OCI, reclassified to net income when the HEDGED ITEM affects earnings
Explanation: CASH FLOW hedge (hedging a FORECASTED transaction): the effective portion is deferred in OCI and RECLASSIFIED to net income when the hedged item affects earnings. That deferral achieves the MATCHING the hedge was designed to produce.
Question 184
A NET INVESTMENT hedge of a foreign subsidiary records the effective portion in:
Select an option first.
Correct answer: D — OCI, within the CUMULATIVE TRANSLATION ADJUSTMENT
Explanation: A NET INVESTMENT hedge parks the effective portion in OCI, within the CTA — alongside the translation adjustment it is hedging. It is released to net income only on SALE or substantial liquidation of the foreign subsidiary.
Question 185
Under the cost-to-cost method, the percentage complete equals:
Select an option first.
Correct answer: C — Costs incurred to date / TOTAL ESTIMATED costs
Explanation: Progress = Costs incurred to date / TOTAL ESTIMATED costs. Revenue recognised = Progress × Contract price. The TOTAL ESTIMATED COST is a management ESTIMATE and is the most manipulable input in the model — understating it inflates the percentage and accelerates revenue.
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Question 186
An expected LOSS on a long-term contract is recognised:
Select an option first.
Correct answer: C — IN FULL, IMMEDIATELY
Explanation: An expected TOTAL LOSS is recognised IN FULL and IMMEDIATELY — never prorated by the percentage complete. PROFITS are spread across the contract; LOSSES land at once. That asymmetry is conservatism in action.
Question 187
Stock-based compensation expense is measured at:
Select an option first.
Correct answer: D — GRANT-DATE FAIR VALUE, recognised over the vesting period and NOT remeasured
Explanation: Compensation cost is fixed at the GRANT-DATE FAIR VALUE and recognised over the VESTING period. It is NOT remeasured for subsequent share-price changes — if the stock collapses, the expense continues unchanged. The only true-up is for actual FORFEITURES.
Question 188
Under ASC 606, the transaction price is allocated to performance obligations based on:
Select an option first.
Correct answer: D — RELATIVE STANDALONE SELLING PRICES
Explanation: Allocation is on RELATIVE STANDALONE SELLING PRICE — what the entity would charge for each good or service SEPARATELY. Contract-stated prices are NOT used, because a seller could otherwise allocate the price to accelerate revenue.
Question 189
Under ASC 985-20, software costs for products to be SOLD are capitalised beginning at:
Select an option first.
Correct answer: A — TECHNOLOGICAL FEASIBILITY
Explanation: Costs are EXPENSED as R&D until TECHNOLOGICAL FEASIBILITY (a detailed program design or a working model), and CAPITALISED thereafter until general release. AMORTISATION then begins at GENERAL RELEASE, at the GREATER of straight-line or the revenue ratio.
Question 190
For INTERNAL-USE software (ASC 350-40), costs are capitalised in the:
Select an option first.
Correct answer: B — APPLICATION DEVELOPMENT stage only
Explanation: Only the APPLICATION DEVELOPMENT stage is CAPITALISED. The PRELIMINARY PROJECT stage and the POST-IMPLEMENTATION stage are EXPENSED. TRAINING costs are expensed in EVERY stage.
Question 191
Under IFRS, LIFO is:
Select an option first.
Correct answer: C — PROHIBITED
Explanation: IFRS PROHIBITS LIFO entirely — only FIFO and weighted average are permitted. US GAAP permits LIFO. This is one of the most significant and frequently examined GAAP/IFRS divergences.
Question 192
Under IFRS, an inventory write-down:
Select an option first.
Correct answer: D — MUST be REVERSED (up to original cost) if the NRV subsequently recovers
Explanation: IFRS REQUIRES reversal of an inventory write-down (limited to the original cost) when the NRV recovers. US GAAP PROHIBITS reversal — the written-down amount becomes the new cost basis. A sharp divergence, and a reliable exam question.
Question 193
Under IFRS, property, plant and equipment may be measured using:
Select an option first.
Correct answer: C — The cost model OR the REVALUATION model (fair value)
Explanation: IFRS permits a REVALUATION MODEL for PP&E, with increases recognised in OCI (a revaluation surplus). US GAAP permits ONLY the historical cost model — assets may be written DOWN for impairment, never UP.
Question 194
A convertible bond issued under current US GAAP (post-ASU 2020-06) is recorded:
Select an option first.
Correct answer: B — ENTIRELY as DEBT, with no separation (unless the conversion feature is a derivative or a substantial premium exists)
Explanation: ASU 2020-06 ELIMINATED the beneficial conversion feature and cash conversion separation models. The proceeds are recorded ENTIRELY as DEBT at face, with interest at the stated rate. Study material predating 2020 would split the proceeds — a stale-material trap.
Question 195
A franchisor recognises the INITIAL franchise fee:
Select an option first.
Correct answer: B — As the related PERFORMANCE OBLIGATIONS are satisfied (training, site selection substantially performed)
Explanation: The initial fee is recognised as the franchisor SATISFIES its performance obligations — typically training, site selection and pre-opening assistance. It may NOT be recognised on signing, because the franchisor still owes those services. CONTINUING royalties are recognised as the franchisee operates.
Question 196
A SALES-BASED ROYALTY on a licence of intellectual property is recognised:
Select an option first.
Correct answer: B — At the LATER of when the subsequent sale occurs, or when the related performance obligation is satisfied
Explanation: The SALES-BASED (or usage-based) ROYALTY EXCEPTION: revenue is recognised at the LATER of (a) when the subsequent sale or usage occurs, or (b) when the performance obligation to which the royalty relates has been satisfied. It applies ONLY to licences of IP.
Question 197
Contingent consideration in a business combination, classified as a LIABILITY, is:
Select an option first.
Correct answer: D — REMEASURED to fair value at each reporting date, with changes in EARNINGS
Explanation: Contingent consideration (an earn-out) classified as a LIABILITY is REMEASURED to fair value each period, with changes in EARNINGS — NOT goodwill. Contingent consideration classified as EQUITY is NOT remeasured at all. Classification drives everything.
Question 198
A measurement period adjustment in a business combination is recorded by adjusting:
Select an option first.
Correct answer: D — GOODWILL, retrospectively
Explanation: MEASUREMENT PERIOD adjustments — reflecting new information about facts that EXISTED AT the acquisition date — adjust GOODWILL retrospectively. Changes arising from events AFTER the acquisition date go to EARNINGS. The measurement period ends at the earlier of one year or when the information is obtained.
Question 199
Acquisition-related costs (legal, advisory, due diligence) in a business combination are:
Select an option first.
Correct answer: D — EXPENSED as incurred
Explanation: Acquisition-related costs are EXPENSED as incurred in a BUSINESS COMBINATION. (In an ASSET ACQUISITION, by contrast, they are CAPITALISED into the cost of the assets.) The treatment inverts between the two, which is exactly what the exam tests.
Question 200
A variable interest entity is consolidated by:
Select an option first.
Correct answer: D — The PRIMARY BENEFICIARY — the party with POWER over the key activities AND exposure to significant losses/benefits
Explanation: The PRIMARY BENEFICIARY consolidates a VIE. BOTH criteria: POWER to direct the activities that most significantly affect economic performance, AND the obligation to absorb losses or right to receive benefits that could be significant. Equity percentage is NOT determinative — that is the whole point of the VIE model.
Question 201
Under the equity method, dividends received from the investee:
Select an option first.
Correct answer: D — REDUCE the investment account
Explanation: Dividends REDUCE the investment account — they are a return OF the investment, not income. Income is recognised as the investor's SHARE of the investee's net income. Recording dividends as revenue is the single most common equity-method error.
Question 202
Segment reporting follows the:
Select an option first.
Correct answer: B — MANAGEMENT approach — segments are reported as reviewed by the chief operating decision maker
Explanation: The MANAGEMENT APPROACH governs: segments are identified and measured AS REVIEWED BY THE CHIEF OPERATING DECISION MAKER — even if those measures are not GAAP figures. Users see the business as management sees it.
Question 203
A defined benefit plan's FUNDED STATUS is:
Select an option first.
Correct answer: C — Plan assets minus the PBO
Explanation: Funded status = Fair value of PLAN ASSETS − PROJECTED BENEFIT OBLIGATION. A NEGATIVE figure means UNDERFUNDED (a liability); positive means OVERFUNDED (an asset). The funded status is recognised IN FULL on the balance sheet.
Question 204
Under ASC 842, a lessee records an operating lease as:
Select an option first.
Correct answer: A — A right-of-use ASSET and a lease LIABILITY, with a SINGLE straight-line lease expense
Explanation: ASC 842 puts BOTH lease types ON the balance sheet. An OPERATING lease reports a SINGLE straight-line lease expense. A FINANCE lease splits it into amortisation plus interest, producing a FRONT-LOADED total expense.
Question 205
A held-for-sale asset is measured at:
Select an option first.
Correct answer: B — The LOWER of carrying value and FAIR VALUE LESS COSTS TO SELL — and depreciation CEASES
Explanation: HELD-FOR-SALE assets: measured at the LOWER of carrying amount and fair value less costs to sell, and DEPRECIATION STOPS. Unlike held-for-use impairments, a held-for-sale write-down CAN be reversed — but only up to the amount of previous write-downs.
Question 206
Under ASC 606, revenue is recognised OVER TIME if:
Select an option first.
Correct answer: B — The customer simultaneously receives and consumes the benefits, OR controls the asset as created, OR there is no alternative use plus an enforceable right to payment
Explanation: Any ONE of the three criteria triggers OVER-TIME recognition. Otherwise revenue is recognised at a POINT IN TIME when CONTROL transfers. The old risks-and-rewards test is gone — ASC 606 asks who CONTROLS the asset.
Question 207
A performance obligation is DISTINCT if:
Select an option first.
Correct answer: C — The customer can benefit from it on its own AND it is separately identifiable within the contract
Explanation: BOTH criteria must be met: (1) CAPABLE of being distinct — the customer can benefit from it alone or with readily available resources; AND (2) DISTINCT WITHIN THE CONTEXT of the contract — separately identifiable from the other promises. Separate PRICING is not the test.
Question 208
The gain on a BARGAIN PURCHASE is:
Select an option first.
Correct answer: C — Recognised IMMEDIATELY IN EARNINGS, after reassessing the identification and valuation of net assets
Explanation: A bargain purchase gain goes to EARNINGS immediately — but the acquirer must FIRST REASSESS whether all assets and liabilities were correctly identified and measured, because a genuine bargain purchase is rare and a negative residual usually signals an error.
Question 209
Under IFRS, development costs (as distinct from research):
Select an option first.
Correct answer: C — May be CAPITALISED if specified criteria are met
Explanation: IFRS distinguishes RESEARCH (always expensed) from DEVELOPMENT (CAPITALISED if six criteria are met — technical feasibility, intention and ability to complete, probable future benefits, adequate resources, and reliable measurement). US GAAP expenses BOTH — a major divergence.
Question 210
Under the ACQUISITION method, identifiable assets acquired are measured at:
Select an option first.
Correct answer: C — FAIR VALUE at the acquisition date
Explanation: Identifiable assets and liabilities are measured at their ACQUISITION-DATE FAIR VALUES — NOT the acquiree's book values. The difference between the consideration (plus NCI and any previously held interest) and the fair value of identifiable net assets is GOODWILL.
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