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Free Questions › ACCA › Financial Accounting
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 391
What is 'diluted EPS'?
Select an option first.
Correct answer: B — EPS calculated assuming all dilutive potential ordinary shares (convertible bonds, share options) have been converted — usually lower than basic EPS because more shares are outstanding
Explanation: B is correct. Diluted EPS: assumes conversion of all dilutive instruments. Increases denominator (and may change numerator e.g., interest saved on converted debt) → diluted EPS ≤ basic EPS. Shows worst-case dilution for existing shareholders. A, C and D are wrong.
Question 392
What is the 'IFRS 15 five-step model' applied to a software licence with 2 years of support?
Select an option first.
Correct answer: B — Step 1: Identify the contract; Step 2: Identify performance obligations (the licence and the support are 2 separate obligations); Step 3-4: Allocate transaction price to each; Step 5: Recognise licence revenue at point in time (delivery) and support revenue over 2 years (time)
Explanation: B is correct. IFRS 15 applied: the licence and ongoing support are distinct performance obligations. Revenue is allocated and recognised as each obligation is satisfied — licence at delivery, support rateably over 2 years. A recognises all upfront. C delays all revenue. D is cash basis.
Question 393
What is the dividend yield formula and what does a high ratio indicate?
Select an option first.
Correct answer: B — Dividend per share ÷ Market price per share × 100% — a high dividend yield indicates either generous dividend payments or a falling share price
Explanation: B is correct. Dividend yield = (DPS ÷ Market price) × 100%. High yield: generous dividends OR declining share price (important to investigate cause). A is earnings yield. C is return on equity (dividends). D is retention ratio.
Question 394
What is the price-earnings (P/E) ratio?
Select an option first.
Correct answer: B — Market price per share ÷ Earnings per share — indicating how many years of current earnings investors are paying; high P/E implies high growth expectations
Explanation: B is correct. P/E = Market price ÷ EPS. High P/E = investors expect strong future earnings growth. A inverts and uses dividends. C is earnings yield. D is NAV per share.
Question 395
What is a 'related party transaction' and why must it be disclosed?
Select an option first.
Correct answer: B — A transaction between parties related by common ownership, significant influence, or family ties — disclosed because it may not be at arm's length, enabling users to assess potential influence on the financial statements
Explanation: B is correct. IAS 24: related parties include subsidiaries, associates, KMPs, their close family, and pension funds. Disclosures: nature of relationship, transaction amounts, outstanding balances. Without disclosure, users cannot judge if results were influenced by non-arm's-length dealings. A, C and D are not the definition.
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Question 396
What is 'cross-subsidisation' in the context of segment reporting?
Select an option first.
Correct answer: B — A situation where one profitable segment subsidises losses in another — without segment disclosures, users cannot identify this and may overestimate the value of the overall business
Explanation: B is correct. Without IFRS 8 segment disclosures, a profitable segment can mask poor performance in others. Segment disclosures reveal each segment's profitability — essential for investment analysis. A and C are cost allocation issues. D is a related but different concept.
Question 397
What is the IFRS 15 five-step model applied to a software licence with 2 years of support?
Select an option first.
Correct answer: B — Identify the contract; identify 2 performance obligations (licence and support); allocate transaction price to each; recognise licence revenue at delivery and support revenue over 2 years
Explanation: B is correct. IFRS 15: the licence and ongoing support are distinct performance obligations. Revenue allocated and recognised as each obligation is satisfied — licence at delivery (point in time), support rateably over 2 years (over time). A recognises all upfront. C delays all revenue. D is cash basis.
Question 398
What is 'off-balance-sheet liability risk' post-IFRS 16?
Select an option first.
Correct answer: B — Prior to IFRS 16, operating leases created off-balance-sheet liabilities — appearing less geared. IFRS 16 addressed this by requiring nearly all leases on balance sheet as ROU assets and lease liabilities, improving faithful representation
Explanation: B is correct. IFRS 16: previously, operating leases (IAS 17) were off balance sheet, understating liabilities and overstating ROCE/gearing. IFRS 16 brings most leases on balance sheet → more faithful picture. A is the old IAS 17 position. C and D are wrong.
Question 399
What is a 'management performance measure' (MPM) under IFRS 18?
Select an option first.
Correct answer: B — An entity-defined measure used to communicate financial performance not specified by an IFRS Standard — if disclosed publicly, IFRS 18 requires: definition, purpose, and reconciliation to the most comparable IFRS measure in the notes
Explanation: B is correct. IFRS 18: MPMs are entity-specific measures used in public communications (e.g., 'adjusted EBITDA'). If disclosed outside financial statements, IFRS 18 requires their definition, purpose, and a reconciliation to the directly comparable IFRS line item in the notes. A says statutory (wrong). C and D are wrong.
Question 400
What is a 'profit warning' in a corporate context?
Select an option first.
Correct answer: B — A communication to the market that the company expects profits to be materially below expectations — required by listing rules for material information; relates to IAS 10 (events after reporting period) for post-period-end events
Explanation: B is correct. Profit warnings: material information affecting investment decisions must be disclosed promptly (listing rules / market regulations). Under IAS 10, material non-adjusting events after the reporting date must be disclosed. A is an audit matter. C and D are internal/accounting concepts.
More free ACCA topics
Management Accounting401
Corporate and Business Law400
Performance Management400
Financial Reporting400
Financial Management400
Strategic Business Reporting400
Advanced Financial Management400
Advanced Performance Management400
Advanced Taxation400
Business and Technology300
Taxation300
Audit and Assurance300
Strategic Business Leader300
Advanced Audit and Assurance296
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