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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 91
Partner A has a capital account of £50,000 and the partnership pays 5% interest on capital. Partner A's salary is £12,000. What is the total appropriated to A before the profit share?
Select an option first.
Correct answer: B — £14,500
Explanation: B is correct. Interest on capital = 5% × £50,000 = £2,500. Salary = £12,000. Total before profit share = £2,500 + £12,000 = £14,500. A uses wrong percentage. C is interest only. D is salary only.
Question 92
What is the purpose of 'interest on drawings' in a partnership?
Select an option first.
Correct answer: B — To penalise partners for withdrawing cash early — added back to profit before sharing, reducing the total available to the partner who drew early
Explanation: B is correct. Interest on drawings penalises early withdrawals — the partner has use of cash for longer. Added back to net profit in the appropriation account before sharing. A describes interest on capital. C and D are wrong.
Question 93
What is a 'current account' in a partnership?
Select an option first.
Correct answer: B — A running account for each partner recording their share of profits, interest on capital, salaries, drawings, and interest on drawings — separate from the fixed capital account
Explanation: B is correct. Partnership current account: records all movements relating to the partner's share of earnings (not their fixed capital contribution). Balance = undistributed profits. Capital account = fixed initial capital. A is the bank account. C and D are too narrow.
Question 94
When a new partner is admitted, what is 'goodwill' and how might it be treated?
Select an option first.
Correct answer: B — Goodwill represents the value of the existing business above its net asset value — credited to existing partners in old PSR, then either retained in the books or immediately written off against all partners in the new PSR
Explanation: B is correct. On admission: goodwill valued, credited to existing partners' capital in old PSR, then either retained or written off against all partners (including new) in new PSR. A is wrong. C overstates. D ignores the bookkeeping.
Question 95
What is the difference between a partner's 'fixed capital account' and 'current account'?
Select an option first.
Correct answer: B — Fixed capital = original permanent capital contribution; current account = running account for profit shares, drawings, salaries, interest — fluctuates regularly
Explanation: B is correct. Fixed capital accounts (permanent capital) alongside current accounts (running balance of profits/drawings). A, C and D are incorrect.
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Question 96
What is 'investment property' under IAS 40?
Select an option first.
Correct answer: B — Property held to earn rental income or for capital appreciation — not owner-occupied. Can be measured at cost or fair value under IAS 40
Explanation: B is correct. IAS 40: investment property = held for rentals/capital gain, not owner-occupied. Models: cost or fair value (gains/losses go to P&L, not OCI). A is PPE. C is IAS 16 during construction. D is inventory.
Question 97
What is the 'fair value model' for investment property under IAS 40?
Select an option first.
Correct answer: B — Investment property is remeasured to fair value each reporting date — gains or losses in PROFIT OR LOSS (not OCI)
Explanation: B is correct. IAS 40 fair value model: FV remeasured each period; entire gain/loss goes to P&L. This differs from IAS 16 revaluation model where gains go to OCI. A is the cost model. C is NRV. D is replacement cost.
Question 98
What is an 'IFRS 5 non-current asset held for sale'?
Select an option first.
Correct answer: B — A non-current asset available for immediate sale, where sale is highly probable within 12 months — measured at the lower of carrying amount and fair value less costs to sell; depreciation stops
Explanation: B is correct. IFRS 5: available now, sale probable within 12 months, actively marketed at a reasonable price. Measurement: lower of CA and FVLCTS. Depreciation ceases on classification. A uses wrong timescale. C and D are wrong.
Question 99
What is IFRS 2 'Share-based Payment'?
Select an option first.
Correct answer: B — A standard governing transactions where an entity receives goods or services in exchange for equity instruments (shares/options) or cash payments based on share price — example: employee share option schemes
Explanation: B is correct. IFRS 2 covers: equity-settled SBP (expense over vesting period, credit to equity), cash-settled SBP (cash based on share price), and choice transactions. A is share issuance. C is treasury shares. D is IAS 32.
Question 100
Under IFRS 2 equity-settled SBP, what is recognised over the vesting period?
Select an option first.
Correct answer: B — A share-based payment expense in P&L and a corresponding credit to equity (share-based payment reserve) — based on FV at the grant date
Explanation: B is correct. Equity-settled IFRS 2: expense based on FV at grant date × estimated number to vest. Credit to equity. FV NOT remeasured after grant date. A describes cash-settled. C and D are wrong.
Question 101
What is IAS 19 'Employee Benefits' and its two key categories?
Select an option first.
Correct answer: B — A standard covering: short-term employee benefits (wages, annual leave) expensed as incurred, and post-employment benefits including defined contribution and defined benefit pension plans
Explanation: B is correct. IAS 19: (1) Short-term (wages, holiday pay) — expense as incurred; (2) Post-employment — defined contribution (fixed contributions, no further obligation) and defined benefit (employer bears actuarial risk). A is health/safety. C is IFRS 2. D is too narrow.
Question 102
What is a 'defined contribution pension scheme'?
Select an option first.
Correct answer: B — A scheme where the employer pays fixed, agreed contributions — once paid, the employer has no further obligation; the employee bears investment risk
Explanation: B is correct. DC: employer pays fixed %; pension depends on investment returns. Risk: employee. Accounting: expense contributions as incurred. A describes defined benefit. C is state pension. D is not a standard scheme type.
Question 103
What is a 'defined benefit pension scheme'?
Select an option first.
Correct answer: B — A scheme promising a specific pension on retirement based on salary and service — employer bears actuarial and investment risk. IAS 19 requires actuarial assumptions to measure the net defined benefit liability/asset
Explanation: B is correct. DB: employer promises a pension based on final salary / career average. IAS 19: net DB liability (PV of obligation − FV of plan assets) on SFP; current service cost and net interest in P&L; actuarial gains/losses in OCI. A is DC. C is state pension. D describes DC.
Question 104
What are ISSB standards and how do they relate to FA?
Select an option first.
Correct answer: B — ISSB (International Sustainability Standards Board) issues sustainability-related disclosure standards (IFRS S1 and S2) — awareness of sustainability/ESG reporting is a growing area relevant to FA context
Explanation: B is correct. The ISSB was established in 2021 under the IFRS Foundation umbrella. IFRS S1 (general sustainability) and IFRS S2 (climate) are issued. At FA level, awareness of ESG importance is relevant context. A, C and D are wrong.
Question 105
What is 'capital maintenance' and why does it matter?
Select an option first.
Correct answer: B — Ensuring profit is only recognised after the entity's capital has been maintained — profit = increase in net assets after maintaining the opening capital base. Protects creditors and enables meaningful profit measurement
Explanation: B is correct. Capital maintenance: profit = change in net assets excluding owner transactions, after maintaining the capital base. Conceptual Framework: financial capital maintenance (money terms) and physical capital maintenance (productive capacity). A is too narrow. C and D misapply the concept.
Question 106
What is 'off-balance-sheet financing' and why is it a concern?
Select an option first.
Correct answer: B — A transaction structured to avoid recognising a liability on the SFP — e.g., old operating leases. Misleads users about gearing and risk
Explanation: B is correct. Off-balance-sheet financing understates gearing, overstates ROCE, and misleads users. IFRS 16 now brings most leases on-balance-sheet. A, C and D are wrong.
Question 107
What is 'creative accounting'?
Select an option first.
Correct answer: B — The manipulation of accounting within (or beyond) the limits of standards to achieve a desired result — e.g., accelerating revenue, deferring expenses. Conflicts with faithful representation (neutrality, freedom from error)
Explanation: B is correct. Creative accounting exploits flexibility to distort reported performance. Examples: channel stuffing, premature revenue recognition. Violates neutrality. A misidentifies it as legitimate. C is appropriate policy choice. D is management accounting.
Question 108
What is the 'effective interest rate' (EIR) method?
Select an option first.
Correct answer: B — A method allocating interest income/expense over the life of a financial instrument at a constant rate applied to the carrying amount — used under IFRS 9 for amortised cost financial assets/liabilities
Explanation: B is correct. EIR method (IFRS 9): the EIR exactly discounts all future cash flows to the initial recognised amount. Interest for each period = carrying amount × EIR. A describes a flat rate. C and D are wrong.
Question 109
What are the three classification categories for financial assets under IFRS 9?
Select an option first.
Correct answer: B — Amortised cost, Fair Value Through Other Comprehensive Income (FVTOCI), and Fair Value Through Profit or Loss (FVTPL) — determined by the entity's business model and contractual cash flow characteristics
Explanation: B is correct. IFRS 9: (1) Amortised cost — hold to collect cash flows (solely P&I); (2) FVTOCI — hold to collect AND sell; (3) FVTPL — all others. Equity instruments default to FVTPL unless irrevocable election to FVTOCI. A, C and D are not IFRS 9 classifications.
Question 110
Under IFRS 9, what is a financial asset measured at amortised cost?
Select an option first.
Correct answer: B — A financial asset held to collect contractual cash flows (solely payments of principal and interest) — measured at initial amount adjusted for EIR interest, repayments, and impairment
Explanation: B is correct. Amortised cost: business model = collect contractual cash flows; cash flow test = solely P&I. Examples: trade receivables, basic loans, HTM bonds. A is FVTPL. C is IAS 2. D is replacement cost.
Question 111
What are the IAS 37 three recognition conditions for provisions?
Select an option first.
Correct answer: B — (1) A present obligation arising from a past event; (2) It is probable that an outflow of resources will be required; (3) A reliable estimate of the amount can be made — ALL three must be met
Explanation: B is correct. IAS 37: all three conditions must be met. 'Present obligation' includes legal and constructive obligations. 'Probable' = more likely than not (>50%). A sets an arbitrary threshold. C gives management too much discretion. D is too narrow.
Question 112
What is a 'constructive obligation' under IAS 37?
Select an option first.
Correct answer: B — An obligation arising from an entity's actions — where the entity has created a valid expectation that it will discharge a responsibility, even without a legal contract (e.g., a published redundancy policy)
Explanation: B is correct. Constructive obligation (IAS 37): from a pattern of past practice or specific statement creating valid expectation. E.g., a retailer with a stated no-quibble returns policy must provision for expected returns. A and D are legal obligations. C misuses the word.
Question 113
Under IAS 37, what is an 'onerous contract'?
Select an option first.
Correct answer: B — A contract where unavoidable costs of meeting the obligation exceed the economic benefits expected — a provision for the least net cost of exiting must be recognised
Explanation: B is correct. Onerous contract (IAS 37): costs > benefits → provision for the lower of: cost of fulfilling OR penalty for exiting. A describes an administrative burden. C and D are not the definition.
Question 114
How is a 'revaluation decrease' treated under IAS 16?
Select an option first.
Correct answer: B — First offset any existing revaluation surplus for that asset; any remaining decrease recognised in profit or loss as an impairment loss
Explanation: B is correct. IAS 16: downward revaluation absorbs existing surplus first. If surplus insufficient, remainder hits P&L. The reverse for subsequent upward revaluations. A and C are too absolute. D violates faithful representation.
Question 115
What is the 'business entity concept' applied to a sole trader?
Select an option first.
Correct answer: B — For accounting purposes, the business is treated as separate from its owner — only business transactions are recorded; personal transactions excluded entirely
Explanation: B is correct. Entity concept: accounting records capture only business transactions. A sole trader is legally one person with their business, but accounting treats them separately. A is the opposite. C is a legal concept. D is good practice, not law for all.
Question 116
What is IFRS 16 and the key change it introduced?
Select an option first.
Correct answer: B — A standard requiring lessees to recognise a right-of-use (ROU) asset and lease liability on the balance sheet for virtually all leases — replacing IAS 17's distinction between finance and operating leases
Explanation: B is correct. IFRS 16: lessees recognise ROU asset (amortised) and lease liability (unwound using EIR) for all leases except short-term (≤12 months) and low-value leases. Eliminated off-balance-sheet operating leases. A is old IAS 17. C and D are wrong.
Question 117
What is the 'right-of-use asset' under IFRS 16?
Select an option first.
Correct answer: B — The present value of lease payments over the lease term, plus initial direct costs, prepayments, and dismantlement costs — initially equal to the lease liability plus those additional items
Explanation: B is correct. IFRS 16 ROU asset initial measurement = PV of lease payments + initial direct costs + lease prepayments + dismantlement costs. A is not the initial basis. C and D are wrong.
Question 118
What is the accounting entry when a lease liability payment is made under IFRS 16?
Select an option first.
Correct answer: B — The payment is split: Debit Lease Liability (capital repayment); Debit Finance Cost (interest); Credit Cash (total payment)
Explanation: B is correct. Each lease payment = finance cost (unwinding of discount) + capital repayment. Finance cost: Dr Finance Cost, Cr Lease Liability (accrual); then payment: Dr Lease Liability, Cr Cash. A records no interest. C is old operating lease treatment. D is wrong.
Question 119
How has the 'prudence' concept changed in the revised IASB Conceptual Framework (2018)?
Select an option first.
Correct answer: B — Prudence is now embedded within faithful representation as 'caution under uncertainty' — but does NOT mean deliberate understatement; neutrality is the overarching principle
Explanation: B is correct. 2018 CF reintroduced prudence as a component of neutrality: caution when uncertain, but NOT asymmetric understatement. A says removed (wrong). C is asymmetric old view. D is wrong — fundamentals remain relevance and faithful representation.
Question 120
What does IAS 8 prescribe regarding changes in accounting policy?
Select an option first.
Correct answer: B — Only when: (a) required by an IFRS standard, or (b) the change results in more reliable and relevant information — requires retrospective restatement
Explanation: B is correct. IAS 8: voluntary changes only when they improve relevance/reliability. Mandatory when required by new/revised standard. Requires retrospective restatement. A gives too much discretion. C and D are governance matters.
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