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Free ACCA Financial Accounting Practice Questions & Answers
400 exam-style Financial Accounting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 361
What is a 'contract asset' under IFRS 15?
Select an option first.
Correct answer: B — An asset arising when an entity has satisfied a performance obligation before the customer has paid and before there is an unconditional right to payment — differs from a receivable (unconditional right already earned)
Explanation: B is correct. IFRS 15: contract asset (conditional right) — performance completed but payment still conditional on further performance. Receivable (unconditional) — right to receive cash is unconditional. A equates them (wrong). C is off-balance-sheet (wrong). D is too early.
Question 362
What is the 'principal vs agent' distinction under IFRS 15?
Select an option first.
Correct answer: B — A principal controls goods/services before transfer → recognises gross revenue. An agent arranges transfer → recognises only the commission or net fee
Explanation: B is correct. IFRS 15: principal (bears risks/rewards before transfer) → gross revenue. Agent (facilitating party) → net fee/commission. Significant P&L impact. A is broadly true but incomplete. C is wrong. D is too narrow.
Question 363
What is 'IAS 16 componentisation'?
Select an option first.
Correct answer: B — Treating significant components of a tangible asset separately for depreciation — each component with a different useful life is depreciated individually (e.g., aircraft body, engines, interiors)
Explanation: B is correct. IAS 16: each significant part with a different useful life depreciated separately. E.g., building (50yr), roof (20yr), HVAC (15yr). A is single-rate depreciation. C and D are wrong.
Question 364
What is 'EBITDA' and why is it used?
Select an option first.
Correct answer: B — Earnings Before Interest, Tax, Depreciation and Amortisation — a non-GAAP proxy for operating cash flow, comparing entities regardless of financing decisions, tax jurisdictions, or depreciation policies
Explanation: B is correct. EBITDA: widely used by analysts as a proxy for cash earnings. Useful for cross-company comparison. Not a defined IFRS measure — IFRS 18 requires reconciliation if disclosed publicly. A is invented. C and D are wrong.
Question 365
What is 'net debt'?
Select an option first.
Correct answer: B — Total borrowings less cash and cash equivalents — the total debt position net of liquid assets
Explanation: B is correct. Net debt = Debt − Cash. Used in gearing analysis. Companies with more cash than debt have 'net cash'. A is net assets. C is negative working capital. D is a reserve calculation.
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Question 366
What is the two methods of measuring NCI under IFRS 3?
Select an option first.
Correct answer: B — Proportionate share of net assets (NCI = NCI% × FV of identifiable net assets) and full goodwill method (NCI at FV) — producing different goodwill amounts
Explanation: B is correct. IFRS 3: (1) Proportionate: NCI = NCI% × FV of net assets → no NCI goodwill. (2) Full goodwill: NCI at FV → NCI goodwill included → higher total goodwill. Choice affects total goodwill recognised. A, C and D are wrong.
Question 367
What are IFRS 8 quantitative thresholds?
Select an option first.
Correct answer: B — An operating segment is reportable if: revenue ≥ 10% of total, or profit/loss ≥ 10% of greater aggregate, or assets ≥ 10% of total assets — and reported segments must cover ≥ 75% of total external revenue
Explanation: B is correct. IFRS 8: 10% thresholds on revenue, profit, or assets. Additional: total external revenue of reported segments ≥ 75% of total entity external revenue. A sets wrong threshold. C uses monetary threshold. D is too permissive.
Question 368
What is a 'deferred tax asset' and when is it recognised?
Select an option first.
Correct answer: B — A future tax benefit from deductible temporary differences or unused tax losses — recognised only when it is probable that sufficient future taxable profits will be available to utilise it
Explanation: B is correct. IAS 12: deferred tax asset = future tax reduction from temporary differences (e.g., asset NBV < tax base) or losses carried forward. Recognised only if recovery probable. A is current tax receivable. C is current tax prepayment. D is contingent.
Question 369
What is 'IAS 21 Effects of Changes in Foreign Exchange Rates' — how are foreign currency transactions initially recognised?
Select an option first.
Correct answer: B — At the spot exchange rate at the transaction date — monetary items retranslated at closing rate; exchange gains/losses in profit or loss
Explanation: B is correct. IAS 21: initial recognition at transaction date spot rate. Monetary items (cash, receivables, payables) retranslated at closing rate → exchange differences in P&L. Non-monetary items at historical rate. A and C are wrong. D (average) is used for income/expenses, not all items.
Question 370
What are the three types of hedging relationships under IFRS 9?
Select an option first.
Correct answer: B — Fair value hedge (hedging FV changes), cash flow hedge (hedging variability in cash flows), and net investment hedge (hedging FX exposure in a foreign operation) — hedge accounting is optional under IFRS 9
Explanation: B is correct. IFRS 9: optional hedge accounting (requires documentation and effectiveness testing). Three types: FV hedge, cash flow hedge, net investment hedge. A says compulsory (wrong). C says two (wrong). D overstates benefit.
Question 371
What is a 'financial instrument' under IFRS 9?
Select an option first.
Correct answer: B — Any contract giving rise to a financial asset of one entity and a financial liability or equity instrument of another — examples: trade receivables, bank loans, bonds, shares held as investments, derivatives
Explanation: B is correct. IFRS 9: financial instruments span both balance sheets. Examples: trade receivables (FA), trade payables (FL), borrowings (FL), bonds held (FA), shares issued (equity), forward contracts (derivative). A is an object. C and D are too narrow.
Question 372
Under IAS 32, when is a financial instrument classified as equity?
Select an option first.
Correct answer: B — When there is no contractual obligation to deliver cash or another financial asset — e.g., ordinary shares with no mandatory redemption or mandatory dividend represent residual interest
Explanation: B is correct. IAS 32: equity = no contractual obligation to pay cash. E.g., ordinary shares = equity (dividends discretionary). Redeemable preference shares with mandatory redemption = liability. A gives management discretion (wrong). C and D are not the criteria.
Question 373
What is the 'consolidation adjustment' for unrealised profit when the subsidiary holds half the goods sold by the parent at mark-up?
Select an option first.
Correct answer: B — Reduce group profit by the unrealised profit on remaining inventory and reduce group inventory by the same amount — so inventory is stated at cost to the group
Explanation: B is correct. Unrealised profit: Dr Group Profit (or Dr Cost of Sales); Cr Group Inventory — both by unrealised profit (mark-up × proportion remaining in inventory). A ignores internal nature. C and D are only half the entry.
Question 374
How are 'intercompany loans' treated on consolidation?
Select an option first.
Correct answer: B — Eliminated on consolidation — the loan asset in the parent and the loan liability in the subsidiary cancel out
Explanation: B is correct. Intra-group balances: parent's receivable from subsidiary and subsidiary's payable to parent cancel on consolidation — internal to the group. Any intercompany interest also eliminated. A double-counts internal balances. C and D are wrong.
Question 375
How is a disposal gain treated in the indirect method cash flow statement?
Select an option first.
Correct answer: B — Deducted from profit — the gain is a non-operating item already in profit but full proceeds are in investing activities; including both would double-count
Explanation: B is correct. Disposal gain in P&L → deduct from operating profit (indirect method) to avoid double-counting; show full proceeds as investing inflow. A adds back (wrong — gains deducted, losses added). C ignores reclassification. D is incomplete.
Question 376
What is the IFRS requirement for 'comparative information'?
Select an option first.
Correct answer: B — At minimum, one year of comparative figures for all statements and notes — and a third balance sheet if a prior-period restatement has been made
Explanation: B is correct. IFRS 18: minimum comparative = prior year. If prior-period error restated under IAS 8, a third balance sheet is required. A is wrong — comparatives are mandatory. C is too narrow. D (5 years) is not required by IFRS.
Question 377
What is the 'DuPont analysis' framework for ROCE?
Select an option first.
Correct answer: B — ROCE = Net profit margin × Asset turnover — the two drivers: profitability (profit per £1 revenue) and efficiency (revenue per £1 assets). Identifies which driver to improve
Explanation: B is correct. DuPont: ROCE = Operating profit margin × Asset turnover. Reveals whether returns are driven by profitability or asset efficiency. A uses gross margin. C uses liquidity ratios. D gives market cap.
Question 378
Revenue £750,000, cost of sales £450,000, operating expenses £120,000, finance costs £15,000, tax rate 20%. What is profit after tax?
Select an option first.
Correct answer: A — £132,000
Explanation: A is correct. Gross profit = £300,000. Operating profit = £300,000 − £120,000 = £180,000. PBT = £180,000 − £15,000 = £165,000. Tax = 20% × £165,000 = £33,000. PAT = £165,000 − £33,000 = £132,000. B is PBT. C is operating profit. D is gross profit.
Question 379
What is a 'true and fair view'?
Select an option first.
Correct answer: B — A fundamental requirement that financial statements as a whole present a fair picture — may require additional disclosure; in rare cases departure from a standard to achieve it
Explanation: B is correct. True and fair view (or 'present fairly' under IFRS): overriding principle — statements should not mislead. IAS 1 / IFRS 18 allows departure from a standard in extremely rare cases where compliance would be so misleading as to conflict with the objective. A requires impossible precision. C is wrong. D is too narrow.
Question 380
What is a 'going concern evaluation'?
Select an option first.
Correct answer: B — Directors evaluate whether the entity can continue operating for the foreseeable future (at least 12 months from authorisation). If not viable, accounts prepared on a 'break-up' basis using liquidation values
Explanation: B is correct. Directors must assess going concern. Material uncertainty → disclose prominently. Going concern inappropriate → break-up basis. A ignores circumstances. C and D are wrong.
Question 381
What is the purpose of 'restating prior period comparatives' under IAS 8?
Select an option first.
Correct answer: B — To ensure the effect of an accounting policy change or correction of a prior period error is reflected as if the new policy/correct treatment had always applied — enabling meaningful comparison
Explanation: B is correct. IAS 8 retrospective restatement: prior period comparatives adjusted as if the new policy/correction had always applied. Maintains comparability. A is manipulation. C is price-level accounting. D is IAS 21.
Question 382
What is an 'audit opinion' and the main types?
Select an option first.
Correct answer: B — A report by independent external auditors on whether financial statements give a true and fair view — main types: unmodified (clean), qualified (except for a matter), adverse (do not give true and fair view), and disclaimer (unable to express opinion)
Explanation: B is correct. External audit: unmodified (fair presentation). Qualified (except for): material misstatement in a specific area. Adverse: pervasive material misstatement. Disclaimer: insufficient evidence. A is the strategic report. C sets wrong threshold. D is internal audit.
Question 383
What are 'accounting estimates' under IAS 8?
Select an option first.
Correct answer: B — Judgements or approximations used under conditions of uncertainty — examples include: estimated useful life of an asset, allowance for doubtful debts, warranty provisions, and fair value measurements based on unobservable inputs
Explanation: B is correct. IAS 8: accounting estimates involve judgement where exact amounts are unknowable. Changes applied prospectively. A removes uncertainty. C is wrong — estimates can be revised. D is wrong.
Question 384
What is the 'statement of financial position format' preferred under IFRS?
Select an option first.
Correct answer: B — Starting with non-current assets, followed by current assets, then equity, non-current liabilities, and current liabilities — the vertical format preferred under IFRS
Explanation: B is correct. IFRS 18 (formerly IAS 1): vertical format most common — Non-current assets; Current assets; Total assets; Equity; Non-current liabilities; Current liabilities; Total equity and liabilities. A and C are not preferred. D is wrong.
Question 385
What is the purpose of 'segmental information' under IFRS 8?
Select an option first.
Correct answer: B — To allow users to understand the different risk and return profiles of the entity's business activities — enabling better assessment of future prospects and comparison across entities
Explanation: B is correct. IFRS 8: segment disclosures help users understand how different parts of the business contribute to overall performance. Analysts use segment data to apply different valuations to different business segments. A is tax compliance. C is management accounting. D is securities regulation.
Question 386
What is 'horizontal analysis' of financial statements?
Select an option first.
Correct answer: B — Comparing financial figures over multiple years — calculating the change (£ and %) from one period to the next to identify trends
Explanation: B is correct. Horizontal (trend) analysis: year-on-year comparison showing direction and magnitude of change over time. A is benchmarking. C is cross-sectional analysis. D is vertical analysis.
Question 387
What is 'vertical analysis' (common-size analysis)?
Select an option first.
Correct answer: B — Expressing each line item as a percentage of a key total (e.g., revenue for income statement; total assets for balance sheet) — enabling comparison across periods and between entities of different sizes
Explanation: B is correct. Vertical analysis: each item as % of base figure. Useful for comparing companies of different sizes and spotting structural changes. A is horizontal analysis. C is cross-sectional. D is too narrow.
Question 388
What is 'negative working capital' and what does it suggest?
Select an option first.
Correct answer: B — Current liabilities exceed current assets — in some industries (e.g., supermarkets) this is efficient; in others it may indicate liquidity risk
Explanation: B is correct. Negative working capital = Current liabilities > Current assets. Supermarkets: goods sold for cash before suppliers paid — efficient. Manufacturing: may mean difficulty meeting short-term obligations. Context is crucial. A reverses definition. C is insolvency. D is extreme.
Question 389
What is the 'cash conversion cycle'?
Select an option first.
Correct answer: B — Inventory days + Receivable days − Payable days — measuring how long cash is tied up in working capital before being returned
Explanation: B is correct. Cash conversion cycle = Inventory days + Receivable days − Payable days. Shorter cycle = cash tied up for less time → lower working capital financing need. A and C are unrelated. D is only part of the cycle.
Question 390
Revenue £200,000, cost of sales £120,000, distribution £15,000, admin £20,000, finance costs £5,000, tax £8,000. What is profit after tax?
Select an option first.
Correct answer: C — £32,000
Explanation: C is correct. GP = £80,000. Operating profit = £80,000 − £15,000 − £20,000 = £45,000. PBT = £45,000 − £5,000 = £40,000. PAT = £40,000 − £8,000 = £32,000. A gives PBT. B gives operating profit. D gives gross profit.
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