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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 31
What is the 'separate entity concept'?
Select an option first.
Correct answer: B — The financial records of the business are kept separate from the personal finances of its owners — even for a sole trader
Explanation: B is correct. For accounting purposes, the business is distinct from its owner(s). This applies to all business types including sole traders. A, C and D misapply or extend the concept.
Question 32
A business buys equipment for £20,000 cash. Effect on the accounting equation?
Select an option first.
Correct answer: B — Assets remain the same — equipment up £20,000 and cash down £20,000
Explanation: B is correct. Asset swap: one asset up, another down; total assets unchanged. Equipment +£20,000; Cash −£20,000. Liabilities and equity unaffected. A applies to a credit purchase. C and D are wrong — no expense on purchasing an asset.
Question 33
A business borrows £50,000 from a bank. Effect on the accounting equation?
Select an option first.
Correct answer: C — Assets increase £50,000; liabilities increase £50,000
Explanation: C is correct. Borrowing: Cash (asset) +£50,000 AND Bank loan (liability) +£50,000. The equation stays balanced. A incorrectly increases equity. B is wrong direction. D reduces assets.
Question 34
Total assets £120,000, equity £45,000. What are total liabilities?
Select an option first.
Correct answer: C — £75,000
Explanation: C is correct. Assets = Liabilities + Equity → £120,000 = L + £45,000 → L = £75,000. A adds equity and assets. B gives only equity. D gives only assets.
Question 35
What is the time period (periodicity) concept?
Select an option first.
Correct answer: B — The life of a business is divided into artificial time periods (e.g., annual, monthly) for reporting financial performance
Explanation: B is correct. The accounting period concept divides the continuous business life into equal periods for measurement and comparison. The most common period is one year. A, C and D set arbitrary rules not required by standards.
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Question 36
What is 'fair value' measurement?
Select an option first.
Correct answer: B — The price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date
Explanation: B is correct. Fair value (IFRS 13) is a market-based exit price in an orderly transaction. Not forced-sale (A), not inflation-adjusted cost (C), not book value (D). Used by IAS 16 revaluation model, IFRS 9, etc.
Question 37
What are the recognition criteria for a financial statement element?
Select an option first.
Correct answer: B — The element's definition is met and recognising it provides relevant and faithfully representative information
Explanation: B is correct. Conceptual Framework: an element is recognised when (1) it meets the definition, and (2) recognition provides useful (relevant and faithfully representative) information. A is too restrictive. C and D are wrong.
Question 38
What is the difference between current and non-current assets?
Select an option first.
Correct answer: B — Current assets are expected to convert to cash or be consumed within 12 months or the operating cycle; non-current assets are held for longer-term use
Explanation: B is correct. Current: short-term (cash, receivables, inventory). Non-current: long-term (property, equipment, intangibles held beyond one period). A, C and D are incorrect.
Question 39
Which is a NON-CURRENT asset?
Select an option first.
Correct answer: C — A factory building used in production for many years
Explanation: C is correct. A factory building is a long-term tangible non-current asset. A is cash (current). B is inventory (current). D is a trade receivable (current).
Question 40
What is the purpose of the IASB Conceptual Framework?
Select an option first.
Correct answer: B — To provide a foundation of concepts for developing and interpreting accounting standards, ensuring consistency
Explanation: B is correct. The Conceptual Framework (2018) provides underlying concepts — objectives, qualitative characteristics, elements, recognition criteria, measurement bases. A describes individual standards. C and D are incorrect.
Question 41
What is a 'sole trader' and their key liability characteristic?
Select an option first.
Correct answer: B — A business owned and run by a single individual with unlimited personal liability for all business debts
Explanation: B is correct. Sole trader: one owner, unlimited liability (personal assets can meet business debts). A incorrectly says limited liability. C is a company. D is a partnership.
Question 42
What is a key characteristic of a limited liability company?
Select an option first.
Correct answer: B — The company is a separate legal entity; shareholders' liability is limited to their investment
Explanation: B is correct. Limited company: (1) separate legal personality, (2) limited liability — shareholders can lose their investment but no more. A is unlimited liability. C and D are incorrect.
Question 43
What is net book value (carrying amount) of a non-current asset?
Select an option first.
Correct answer: B — Original cost less accumulated depreciation and accumulated impairment losses
Explanation: B is correct. NBV = Cost − Accumulated depreciation − Accumulated impairment. A and C are market values. D is replacement cost.
Question 44
What is 'net realisable value' (NRV) of inventory?
Select an option first.
Correct answer: B — Estimated selling price less estimated costs of completion and selling
Explanation: B is correct. NRV (IAS 2) = Estimated selling price − Costs of completion − Costs to sell. Inventory is measured at lower of cost and NRV. A is cost. C is replacement cost. D is the carrying amount.
Question 45
What is 'neutrality' as a component of faithful representation?
Select an option first.
Correct answer: B — Information presented without bias — not influencing users towards a particular conclusion
Explanation: B is correct. Neutrality: information is not slanted to achieve a predetermined outcome. A is biased. C misuses 'neutral'. D is the accounting equation.
Question 46
A partner withdraws £5,000 cash from a partnership for personal use. What is this called?
Select an option first.
Correct answer: C — Drawings — a personal withdrawal reducing the partner's capital account
Explanation: C is correct. Drawings: amounts withdrawn by owners for personal use. They reduce equity (capital account) and reduce cash. A salary would be an expense. Dividends are paid by companies. D implies a prior loan.
Question 47
What is the 'matching concept'?
Select an option first.
Correct answer: B — Expenses should be recognised in the same period as the income they helped to generate
Explanation: B is correct. Matching (part of accruals): expenses matched to income produced in the same period. A is the accounting equation. C confuses cash and accruals. D is the cash basis.
Question 48
What is a provision under IAS 37?
Select an option first.
Correct answer: B — A liability of uncertain timing or amount — recognised when: a present obligation exists from a past event, an outflow of resources is probable, and a reliable estimate can be made
Explanation: B is correct. IAS 37: all three conditions must be met — present obligation, probable outflow, reliable estimate. A is a physical cash fund (not required). C is income-related. D is a 'secret reserve' (not permitted).
Question 49
What is 'verifiability'?
Select an option first.
Correct answer: B — Different knowledgeable and independent observers could reach the same conclusion from the information
Explanation: B is correct. Verifiability: different informed parties would agree — either directly (counting cash) or indirectly (checking a model). A links it only to audit. C is evidence documentation. D is authorisation.
Question 50
What is 'understandability'?
Select an option first.
Correct answer: B — Information is presented clearly and concisely so a reasonably knowledgeable user can understand it
Explanation: B is correct. Understandability: clear classification and presentation. The IASB assumes users have reasonable financial knowledge. A and C are too restrictive. D is a translation issue.
Question 51
What is 'timeliness'?
Select an option first.
Correct answer: B — Information is available to decision-makers in time to be capable of influencing their decisions
Explanation: B is correct. Timeliness: information loses value if received after decisions have been made. A is legal compliance. C links to audit. D is a bookkeeping best practice.
Question 52
What is 'derecognition' of an asset?
Select an option first.
Correct answer: B — Removing an asset from the statement of financial position when the entity loses control or economic benefits have expired
Explanation: B is correct. Derecognition: removal of a previously recognised asset when control is lost or economic benefits expire. A is depreciation/impairment. C is a specific type. D is reclassification.
Question 53
What is an 'accounting policy'?
Select an option first.
Correct answer: B — The specific principles, bases, conventions, rules, and practices applied in preparing and presenting financial statements — applied consistently and disclosed
Explanation: B is correct. Accounting policies are choices within the framework of standards — e.g., FIFO vs AVCO, straight-line vs reducing balance. Must be applied consistently and disclosed. A and D are governance/audit matters. C is a bookkeeping tool.
Question 54
What is the difference between depreciation and amortisation?
Select an option first.
Correct answer: B — Depreciation is systematic cost allocation for tangible non-current assets; amortisation is the equivalent for intangible assets with finite useful lives
Explanation: B is correct. Depreciation (IAS 16): tangible PPE. Amortisation (IAS 38): finite-life intangibles. Goodwill not amortised under IFRS — tested for impairment. A reverses the definitions. C is wrong. D is incorrect.
Question 55
What is 'income' as defined in the IASB Conceptual Framework?
Select an option first.
Correct answer: B — Increases in assets or decreases in liabilities that result in increases in equity, other than contributions from equity holders
Explanation: B is correct. Income includes revenue and gains. It is defined as increases in economic resources that increase equity — excluding capital contributions. A is cash-based. C is too narrow. D is a bookkeeping description.
Question 56
What are 'expenses' as defined in the IASB Conceptual Framework?
Select an option first.
Correct answer: B — Decreases in assets or increases in liabilities that result in decreases in equity, other than distributions to equity holders
Explanation: B is correct. Expenses include costs of ordinary activities and losses — reducing equity through asset decreases or liability increases, excluding dividends. A is cash-based. C is a bookkeeping description. D is too narrow.
Question 57
Assets £200,000, Liabilities £85,000. What is equity?
Select an option first.
Correct answer: C — £115,000
Explanation: C is correct. Equity = Assets − Liabilities = £200,000 − £85,000 = £115,000. A adds instead. B gives liabilities. D gives assets.
Question 58
What is a 'contingent liability' and how is it treated?
Select an option first.
Correct answer: B — A possible obligation depending on a future uncertain event — disclosed in notes if possible/probable, not recognised on the face of the SFP
Explanation: B is correct. IAS 37: contingent liability = possible obligation from past events depending on future uncertain events. Disclose in notes if possible/probable; ignore if remote. A is a definite liability. C and D are other concepts.
Question 59
What is 'capital' in the context of a sole trader's accounts?
Select an option first.
Correct answer: B — The owner's total equity — initial investment plus retained profits less drawings
Explanation: B is correct. Sole trader capital = Opening capital + Profit − Drawings. Represents the owner's stake. A is too narrow. C is assets, not capital. D applies to companies.
Question 60
Under IAS 38, which internally generated intangible CAN be recognised?
Select an option first.
Correct answer: C — Development expenditure meeting all six required criteria (technical feasibility, intention to complete, ability to use/sell, probable economic benefits, available resources, reliable measurement)
Explanation: C is correct. IAS 38: brands, customer lists, and goodwill NEVER recognised internally. Research always expensed. Development capitalised only when all six criteria met. A and D are explicitly prohibited. B must be expensed (research phase).
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