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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 241
Under IFRS, the PARTIAL goodwill method measures NCI at:
Select an option first.
Correct answer: D — Its PROPORTIONATE SHARE of the fair value of identifiable net assets — recognising NO goodwill for the NCI
Explanation: IFRS permits a CHOICE (per transaction): FULL goodwill (NCI at fair value, as under US GAAP) or PARTIAL goodwill (NCI at its proportionate share of identifiable net assets, so NO goodwill is attributed to the NCI). US GAAP REQUIRES full goodwill.
Question 242
Under IFRS, an entity may classify interest PAID in the cash flow statement as:
Select an option first.
Correct answer: B — OPERATING or FINANCING (a policy election applied consistently)
Explanation: IFRS permits interest paid to be classified as OPERATING or FINANCING, and interest/dividends received as OPERATING or INVESTING — with a consistent policy election. US GAAP is rigid: interest paid AND received are OPERATING; only dividends PAID are financing.
Question 243
A deferred tax asset under IFRS is recognised:
Select an option first.
Correct answer: D — ONLY to the extent it is PROBABLE that future taxable profit will be available — there is NO valuation allowance concept
Explanation: IFRS recognises a DTA only to the extent it is PROBABLE that taxable profit will be available — a single-step 'probable' test. US GAAP recognises the DTA in FULL and then reduces it with a VALUATION ALLOWANCE if realisation is not more likely than not. Same economics, different mechanics — and IFRS has no valuation allowance account.
Question 244
An acquirer holds a previously held 30% interest with a carrying value of $2m and a fair value of $3m at acquisition. It should recognise:
Select an option first.
Correct answer: C — A $1m GAIN in earnings, and include the $3m fair value in the goodwill computation
Explanation: In a STEP acquisition, the previously held interest is REMEASURED to FAIR VALUE, with the $1m gain to EARNINGS. The $3m fair value then enters the goodwill computation alongside the consideration transferred and the FV of any NCI.
Question 245
A parent sells a 10% stake in a subsidiary, retaining 70% (control retained). The gain is recorded in:
Select an option first.
Correct answer: A — APIC — it is an EQUITY transaction between owners, since control was retained
Explanation: So long as CONTROL is RETAINED, changes in ownership are EQUITY transactions. The difference between the consideration received and the adjustment to the NCI's carrying amount goes to APIC — NOT to income. Only a LOSS OF CONTROL triggers income recognition.
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Question 246
A parent sells a 60% stake, retaining 10% (control LOST). The retained 10% is:
Select an option first.
Correct answer: D — REMEASURED to FAIR VALUE, with the gain or loss in EARNINGS — along with any CTA reclassification
Explanation: On LOSS OF CONTROL, the parent DERECOGNISES the subsidiary and REMEASURES the RETAINED interest to FAIR VALUE, recognising the gain or loss (on BOTH the sold and retained portions) in EARNINGS. Any accumulated CTA in AOCI is also RECLASSIFIED to income.
Question 247
A parent sells equipment to its subsidiary at a $100,000 gain; the asset has a 5-year remaining life. In Year 1 consolidation, the eliminations reduce consolidated income by:
Select an option first.
Correct answer: C — $80,000 — eliminate the $100,000 gain, but REVERSE the $20,000 of excess depreciation
Explanation: TWO adjustments. (1) ELIMINATE the $100,000 unrealised gain. (2) The subsidiary now depreciates a WRITTEN-UP amount, so EXCESS depreciation of $100,000/5 = $20,000 must be REVERSED. Net = $100,000 − $20,000 = $80,000 reduction. The excess depreciation progressively 'realises' the deferred gain.
Question 248
A VIE is consolidated by a party owning only 5% of the equity because that party:
Select an option first.
Correct answer: C — Is the PRIMARY BENEFICIARY — it has POWER over the key activities AND absorbs significant losses
Explanation: The VIE model deliberately DECOUPLES consolidation from equity ownership. The PRIMARY BENEFICIARY has BOTH: POWER to direct the activities most significantly affecting economic performance, AND the obligation to absorb losses (or right to benefits) that could be significant. A 5% holder with those attributes consolidates.
Question 249
The equity method investor's share of the investee's OCI is recorded in:
Select an option first.
Correct answer: B — The INVESTOR'S OWN OCI, with a corresponding adjustment to the investment account
Explanation: The investment account is a 'one-line consolidation': the investor records its proportionate share of EVERYTHING that changes the investee's equity other than owner transactions — including OCI, which flows to the INVESTOR'S OWN OCI.
Question 250
A company acquires 40% of an investee for $5m; the FV of identifiable net assets is $11m and book value is $10m. Equity-method GOODWILL is:
Select an option first.
Correct answer: C — $600,000 — cost ($5m) less 40% of the FAIR VALUE of net assets ($4.4m)
Explanation: Equity-method goodwill = Cost ($5,000,000) − Investor's share of the FAIR VALUE of identifiable net assets (40% × $11,000,000 = $4,400,000) = $600,000. The $400,000 excess of FV over BOOK value (40% × $1m) is AMORTISED against equity-method income if it relates to depreciable assets; the goodwill portion is NOT amortised.
Question 251
Amortisation of the fair-value/book-value differential in the equity method:
Select an option first.
Correct answer: B — REDUCES equity-method income
Explanation: The investor paid for FAIR values above book, so as those assets depreciate, the investor must AMORTISE the differential — REDUCING equity-method income below the simple proportionate share. The GOODWILL component of the differential is NOT amortised.
Question 252
A functional currency determination of the LOCAL currency means the subsidiary's statements are:
Select an option first.
Correct answer: A — TRANSLATED — assets/liabilities at the current rate, income at the average rate, with the adjustment to OCI
Explanation: Functional = LOCAL currency → TRANSLATION → the adjustment goes to OCI (the CTA). Functional = PARENT'S currency → REMEASUREMENT → the gain or loss goes to NET INCOME. The functional currency determination drives everything downstream.
Question 253
A subsidiary in a HIGHLY INFLATIONARY economy must be:
Select an option first.
Correct answer: D — REMEASURED as though its functional currency were the PARENT'S, with gains and losses in NET INCOME
Explanation: In a HIGHLY INFLATIONARY economy (cumulative inflation approaching 100% over three years), the local currency is NOT a stable measuring unit. The subsidiary is REMEASURED as though the functional currency were the PARENT'S — sending exchange gains and losses to NET INCOME rather than OCI.
Question 254
A FIRM COMMITMENT hedged with a forward contract is a:
Select an option first.
Correct answer: C — FAIR VALUE hedge — a firm commitment is an existing (though unrecognised) obligation, so changes flow through EARNINGS
Explanation: A FIRM COMMITMENT is an existing binding agreement, so hedging it is a FAIR VALUE hedge: both the derivative AND the firm commitment are marked to market through EARNINGS, where they offset. A FORECASTED (not yet committed) transaction would be a CASH FLOW hedge instead.
Question 255
A cash flow hedge is DISCONTINUED because the forecasted transaction is no longer PROBABLE. The AOCI balance is:
Select an option first.
Correct answer: A — RECLASSIFIED to EARNINGS IMMEDIATELY
Explanation: If the forecasted transaction is NO LONGER PROBABLE, the hedge relationship fails — there is nothing left to match the deferred amount against. The AOCI balance is RECLASSIFIED to EARNINGS immediately. (If the transaction is merely DELAYED but still probable, the amount STAYS in AOCI.)
Question 256
An entity applies the FAIR VALUE OPTION to a hybrid instrument. The effect is that:
Select an option first.
Correct answer: D — NO bifurcation is needed — the ENTIRE hybrid is measured at fair value through earnings
Explanation: Electing the FAIR VALUE OPTION for the ENTIRE hybrid instrument avoids the need to identify and bifurcate the embedded derivative. All changes flow through EARNINGS. The election is IRREVOCABLE and made at initial recognition.
Question 257
Under ASC 606, a contract modification is a SEPARATE contract when:
Select an option first.
Correct answer: A — The additional goods are DISTINCT AND the price increases by their STANDALONE SELLING PRICE
Explanation: BOTH conditions must hold: the added goods/services are DISTINCT, AND the price increase reflects their STANDALONE SELLING PRICE. Otherwise, the modification is treated as a TERMINATION of the old contract and creation of a new one (if the remaining goods are distinct), or a CUMULATIVE CATCH-UP adjustment.
Question 258
A BILL-AND-HOLD arrangement permits revenue recognition only if:
Select an option first.
Correct answer: B — The arrangement is SUBSTANTIVE, the product is separately IDENTIFIED as the customer's, is READY for transfer, and the entity CANNOT use or redirect it
Explanation: ALL FOUR criteria must be met. Invoicing (option A) proves nothing — bill-and-hold is a classic revenue manipulation, and the criteria exist precisely to prevent it.
Question 259
A sale with a REPURCHASE OPTION at a price BELOW the original selling price is accounted for as:
Select an option first.
Correct answer: B — A LEASE — the customer effectively rented the asset
Explanation: With a seller CALL option or a customer PUT option: if the repurchase price is BELOW the original selling price, it is a LEASE. If the repurchase price is AT OR ABOVE the original price, it is a FINANCING arrangement (the seller effectively borrowed against the asset). Either way, NO SALE is recognised.
Question 260
A sale-and-leaseback where the transfer QUALIFIES as a sale results in:
Select an option first.
Correct answer: A — IMMEDIATE recognition of the full gain or loss, with the leaseback accounted for separately
Explanation: If the transfer QUALIFIES as a sale under ASC 606 (control transferred), the seller-lessee recognises the FULL gain or loss IMMEDIATELY and accounts for the leaseback as a separate lease. The pre-ASC 842 deferral-and-amortisation approach is gone. If it does NOT qualify as a sale, it is a FINANCING arrangement.
Question 261
Under ASC 842, a lessor's SALES-TYPE lease recognises SELLING PROFIT at:
Select an option first.
Correct answer: A — COMMENCEMENT — the difference between the fair value (or PV of payments) and the carrying amount
Explanation: In a SALES-TYPE lease, the lessor derecognises the asset and recognises SELLING PROFIT at COMMENCEMENT = PV of lease payments (or fair value) − carrying amount of the asset. Interest income is then recognised over the lease term on the net investment.
Question 262
A DIRECT FINANCING lease differs from a sales-type lease in that:
Select an option first.
Correct answer: B — Any SELLING PROFIT is DEFERRED and recognised over the lease term, rather than at commencement
Explanation: Under ASC 842, a DIRECT FINANCING lease arises when the OWNES criteria are not met but collectability is probable and a third-party residual value guarantee causes control to transfer. Any selling PROFIT is DEFERRED and recognised over the lease term — not immediately as in a sales-type lease.
Question 263
A lessee remeasures the lease liability when:
Select an option first.
Correct answer: C — The LEASE TERM changes, the purchase option assessment changes, or amounts probable under a residual value guarantee change
Explanation: Remeasurement is triggered by SPECIFIED events: a change in the lease TERM; a change in the assessment of a PURCHASE OPTION; or a change in amounts PROBABLE of being owed under a residual value guarantee. It is NOT routinely remeasured for market rate or fair value changes.
Question 264
Under ASC 842, VARIABLE lease payments based on USAGE or SALES are:
Select an option first.
Correct answer: B — EXCLUDED from the liability and EXPENSED as incurred
Explanation: Variable payments based on USAGE or SALES (a percentage-of-sales rent) are EXCLUDED from the lease liability and EXPENSED as incurred. Only payments based on an INDEX OR RATE are included (measured at the rate in effect at commencement). This exclusion is a favourite exam distinction.
Question 265
IFRS 16 differs from ASC 842 for LESSEES in that IFRS:
Select an option first.
Correct answer: A — Uses a SINGLE model — all leases produce amortisation plus interest (front-loaded); there is NO operating lease classification for lessees
Explanation: IFRS 16 uses a SINGLE lessee model: virtually all leases are treated like finance leases, with expense split into AMORTISATION and INTEREST (front-loaded). US GAAP retains the DUAL model, where operating leases produce a SINGLE straight-line expense. A significant divergence in reported operating income and EBITDA.
Question 266
Under IFRS, biological assets are measured at:
Select an option first.
Correct answer: B — FAIR VALUE LESS COSTS TO SELL, with changes in PROFIT OR LOSS
Explanation: IAS 41 requires BIOLOGICAL ASSETS (living plants and animals) to be measured at FAIR VALUE LESS COSTS TO SELL, with changes recognised in PROFIT OR LOSS. US GAAP has no equivalent standard — agricultural assets are generally carried at cost. A notable divergence with no US analogue.
Question 267
Under IFRS, a provision is recognised when:
Select an option first.
Correct answer: C — A PRESENT OBLIGATION exists, an outflow is PROBABLE (more likely than not), and the amount can be reliably estimated
Explanation: IFRS defines PROBABLE as 'MORE LIKELY THAN NOT' (over 50%). US GAAP's 'probable' is a HIGHER threshold ('likely to occur'). So IFRS recognises provisions EARLIER and more often. And where a range exists with no better estimate, IFRS takes the MIDPOINT while US GAAP takes the LOW END.
Question 268
Under IFRS, the reversal of an impairment loss on goodwill is:
Select an option first.
Correct answer: D — PROHIBITED — goodwill impairments may never be reversed, even under IFRS
Explanation: IFRS permits reversal of impairment losses on MOST assets — but NEVER on GOODWILL. US GAAP prohibits reversal on ALL held-for-use assets. So goodwill impairment is permanent under both frameworks; the divergence concerns other assets.
Question 269
Under IFRS, a DTA and DTL in the same jurisdiction are:
Select an option first.
Correct answer: A — OFFSET and presented as a single NON-CURRENT amount (as under US GAAP)
Explanation: Both IFRS and US GAAP OFFSET deferred tax assets and liabilities within the same tax jurisdiction and present the net amount as NON-CURRENT. The IFRS/GAAP divergence lies in RECOGNITION (the 'probable' test versus the valuation allowance), not in presentation.
Question 270
An entity capitalises contract acquisition costs and the contract becomes IMPAIRED. It should:
Select an option first.
Correct answer: B — Recognise an IMPAIRMENT LOSS, writing the asset down to the remaining consideration expected LESS the remaining costs to deliver
Explanation: Capitalised contract costs are tested for IMPAIRMENT: the carrying amount is compared with the REMAINING consideration expected LESS the remaining costs to provide the services. The excess is an impairment loss. Unusually, this impairment CAN be REVERSED if conditions improve — most US GAAP impairments cannot.
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