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Free ACCA Strategic Business Reporting Practice Questions & Answers
400 exam-style Strategic Business Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 61
The equity method under IAS 28 requires the investor to:
Select an option first.
Correct answer: B — Include its share of the associate's profit/loss and OCI, adjusting the investment carrying amount
Explanation: B is correct: equity method = share of P&L in P&L + share of OCI in OCI; dividends reduce the carrying amount. A is wrong — dividend-only was the old cost method. C is wrong — line-by-line is for subsidiaries. D is wrong — cost less impairment is for financial instruments.
Question 62
On disposal of a revalued PPE asset with a $200,000 revaluation surplus, the surplus is:
Select an option first.
Correct answer: C — Transferred directly to retained earnings (not through P&L)
Explanation: C is correct: on disposal, the revaluation surplus is transferred directly to retained earnings — not through P&L. The gain/loss on disposal is computed on carrying amount vs proceeds, separately. A is wrong — revaluation surpluses are never recycled to P&L. B is wrong — it should be transferred. D is wrong — the disposal gain is calculated independently.
Question 63
Under IFRS 9, the business model assessment is made at:
Select an option first.
Correct answer: B — Portfolio level — reflecting how the entity manages groups of financial assets
Explanation: B is correct: business model is assessed at portfolio level since a single entity may manage different groups of assets with different objectives. A is wrong — instrument-level would give inconsistent results. C is wrong — entity-level doesn't reflect multiple portfolios. D is wrong — counterparty is irrelevant.
Question 64
A cash-settled share-based payment differs from equity-settled in that:
Select an option first.
Correct answer: B — The liability is remeasured to fair value at each reporting date with changes in P&L
Explanation: B is correct: cash-settled awards create a liability remeasured to current FV at each reporting date and settlement. A is wrong — cash-settled awards are recognised. C is wrong — remeasurement to current FV is the whole point. D is wrong — equity-settled awards use fixed grant-date FV.
Question 65
Goodwill must be allocated to CGUs and tested annually for impairment because:
Select an option first.
Correct answer: B — Goodwill cannot generate independent cash flows and has indefinite life — annual testing prevents overstatement
Explanation: B is correct: goodwill is not amortised under IFRS — it is allocated to CGUs that benefit from the combination and tested at least annually, since goodwill has an indefinite useful life and no independent cash flows. A is wrong — goodwill is not amortised. C is wrong — CGUs can carry impaired amounts. D is wrong — all non-current assets with indicators are tested.
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Question 66
Under IFRS 15, variable consideration is included in the transaction price only to the extent:
Select an option first.
Correct answer: B — It is highly probable that a significant revenue reversal will not occur when the uncertainty resolves
Explanation: B is correct: the variable consideration constraint — include only amounts for which it is highly probable that a significant cumulative revenue reversal will not occur. A is wrong — written agreement is not the criterion. C is wrong — regulation would remove variability. D is wrong — estimation is required before POs are fully satisfied.
Question 67
Deferred tax on a $300,000 revaluation surplus at 25% tax rate is $75,000. This deferred tax is:
Select an option first.
Correct answer: B — Debited to OCI (charged against the revaluation surplus)
Explanation: B is correct: since the revaluation gain was in OCI, the related deferred tax is also charged to OCI — deducted from the revaluation surplus. A is wrong — the DT is a charge (debit) not a credit to OCI. C is wrong — it follows the transaction (OCI, not P&L). D is wrong — retained earnings are not used here.
Question 68
A cash flow hedge under IFRS 9 hedges:
Select an option first.
Correct answer: B — Variability in cash flows attributable to a particular risk of a recognised item or highly probable forecast transaction
Explanation: B is correct: cash flow hedge hedges cash flow variability — from existing asset/liability (floating rate debt) or highly probable forecast transaction (future FX sale). A is wrong — fair value hedge covers fair value exposure. C is wrong — net investment hedge is a separate category. D is wrong — translation differences are IAS 21 items.
Question 69
Functional currency of a foreign subsidiary is primarily determined by:
Select an option first.
Correct answer: B — Currency of primary economic environment — mainly where cash is generated and used
Explanation: B is correct: IAS 21 focuses on the currency that mainly influences sales prices, labour, materials and financing. A is wrong — incorporation country is not determinative. C is wrong — parent's currency does not dictate. D is wrong — bank account currency is a secondary indicator.
Question 70
Under IAS 19, actuarial gains and losses on defined benefit plans are recognised in:
Select an option first.
Correct answer: B — OCI in full in period they arise — never reclassified to P&L
Explanation: B is correct: IAS 19 (revised) requires all remeasurements (including actuarial gains/losses) to be recognised immediately in OCI, permanently. A is wrong — P&L treatment was old corridor approach. C is wrong — recycling was also eliminated. D is wrong — OCI accumulates in retained earnings, not a separate reserve.
Question 71
In a sale and leaseback under IFRS 16, a gain is only recognised to the extent:
Select an option first.
Correct answer: B — The gain relates to rights transferred to the buyer-lessor — the proportion not retained through the leaseback
Explanation: B is correct: in a valid sale and leaseback, only the gain on rights transferred (not retained via ROU asset) is recognised. A is wrong — gain is not simply sale price less cost. C is wrong — full gain recognition ignores retained rights. D is wrong — IFRS 16 treats all lessee leases the same.
Question 72
Deferred tax is measured at:
Select an option first.
Correct answer: A — The enacted or substantively enacted tax rate expected to apply when the temporary difference reverses
Explanation: A is correct: IAS 12 requires the tax rate enacted/substantively enacted at the reporting date expected to apply when the asset is realised or liability settled. B is wrong — effective rate includes the DT effect itself. C is wrong — historical rates misstate future tax consequences. D is wrong — rates may have changed since initial recognition.
Question 73
An entity revalues PPE from $500,000 to $650,000; tax base = $400,000; tax rate 20%. The journal entry includes:
Select an option first.
Correct answer: B — Dr PPE $150,000; Cr Revaluation surplus (OCI) $120,000; Cr DTL $30,000
Explanation: B is correct: Revaluation gain = $150,000. New temporary difference = ($650,000 − $400,000) − ($500,000 − $400,000) = $150,000 additional × 20% = $30,000 DTL charged to OCI. Net OCI = $150,000 − $30,000 = $120,000. A is wrong — ignores deferred tax. C is wrong — revaluation goes to OCI not P&L. D is wrong — DT is charged to OCI not retained earnings.
Question 74
IFRS for SMEs differs from full IFRS in that:
Select an option first.
Correct answer: B — IFRS for SMEs is a simplified framework with reduced disclosures and some measurement simplifications for entities without public accountability
Explanation: B is correct: IFRS for SMEs removes options, simplifies measurements (e.g. goodwill amortised up to 10 years, no revaluation model) and reduces disclosures. A is wrong — some full IFRS options are removed. C is wrong — goodwill is amortised not annually impairment-tested. D is wrong — revaluation model is not permitted under IFRS for SMEs.
Question 75
A restructuring provision under IAS 37 can be recognised when:
Select an option first.
Correct answer: B — A constructive obligation exists — detailed formal plan exists AND valid expectation created in those affected
Explanation: B is correct: a constructive obligation requires both a detailed formal plan AND communication creating a valid expectation in employees/customers. A is wrong — board approval without communication is insufficient. C is wrong — starting implementation confirms but is not the only trigger. D is wrong — costs incurred mean the provision should have been raised earlier.
Question 76
A contract modification under IFRS 15 is treated as a new separate contract when:
Select an option first.
Correct answer: B — Added goods/services are distinct AND price increase reflects their standalone selling price
Explanation: B is correct: a separate contract requires both: (1) distinct goods/services added, and (2) price change reflects standalone selling price. A is wrong — increased scope alone is insufficient. C is wrong — writing is not a criterion. D is wrong — termination is not a condition.
Question 77
Variable lease payments linked to an index under IFRS 16 are initially:
Select an option first.
Correct answer: B — Included in the lease liability using the index at commencement date
Explanation: B is correct: IFRS 16 includes index-linked variable payments using the current index/rate at commencement. They are remeasured when the index changes. A is wrong — only genuinely variable payments (not index-linked) are excluded. C is wrong — expensing ignores their inclusion in the liability. D is wrong — expected value is not used; current index is.
Question 78
Impairment losses on a CGU under IAS 36 are allocated first to:
Select an option first.
Correct answer: B — Goodwill allocated to the CGU, then pro rata to other assets (subject to individual asset floors)
Explanation: B is correct: IAS 36 allocates impairment losses first to goodwill (since it has the least reliable recoverable amount), then pro rata to other assets — but no individual asset can be written below the higher of its own FVLCOD, VIU or zero. A is wrong — goodwill goes first. C is wrong — the correct order is goodwill first. D is wrong — equal allocation ignores goodwill priority.
Question 79
A financial liability modification gain under IFRS 9 is recognised:
Select an option first.
Correct answer: B — In P&L immediately when terms are modified
Explanation: B is correct: when a liability is modified (not extinguished), the difference between old carrying amount and PV of revised cash flows at original EIR is recognised immediately in P&L. A is wrong — modifications do not go to OCI. C is wrong — deferral is not permitted. D is wrong — equity is not affected.
Question 80
An entity acquires an in-process R&D project in a business combination. Under IFRS 3, this is:
Select an option first.
Correct answer: B — Recognised as a separate intangible at fair value at acquisition, even if IAS 38 criteria are not met separately
Explanation: B is correct: IFRS 3 requires all identifiable intangible assets (including in-process R&D) to be recognised separately from goodwill at fair value at acquisition. A is wrong — expensing violates the acquisition method. C is wrong — including in goodwill is only if not separately identifiable; in-process R&D meets separability. D is wrong — it is an intangible, not contingent asset.
Question 81
Under IFRS 9, hedge effectiveness for a cash flow hedge must be within approximately:
Select an option first.
Correct answer: B — No specific percentage — hedge relationship must meet the hedge effectiveness requirement (economic relationship exists, credit risk does not dominate, and hedge ratio is consistent with risk management)
Explanation: B is correct: IFRS 9 replaced the 80%–125% bright-line test with a principles-based approach requiring: (1) economic relationship between hedged item and hedging instrument, (2) credit risk does not dominate changes in value, and (3) hedge ratio reflects actual quantities used. A is wrong — that was the old IAS 39 rule. C and D are wrong thresholds.
Question 82
Under IFRS 15, the 'output method' of measuring progress to completion for over-time performance obligations uses:
Select an option first.
Correct answer: B — Observable outcomes such as milestones achieved, units produced or delivered, surveys of completion
Explanation: B is correct: output methods measure progress based on the value transferred to the customer — milestones, units delivered or surveys of work completed. These directly reflect the customer's value received. A is wrong — that is the input (cost-based) method. C is wrong — time is an input method (if labour is even over time). D is wrong — payments received are not a measure of performance completion.
Question 83
Under IFRS 9, a purchased credit-impaired (POCI) financial asset is one that:
Select an option first.
Correct answer: B — Was credit-impaired at the time of initial recognition (purchased or originated at a deep discount reflecting existing credit losses)
Explanation: B is correct: POCI assets are acquired or originated with credit impairment already reflected in the price at initial recognition. They are accounted for differently — lifetime ECL is always recognised, but the ECL allowance starts at zero if the expected cash flows are as originally assessed at acquisition. A is wrong — post-acquisition deterioration moves an asset through Stages 1-3. C is wrong — below-market rate is not the POCI definition. D is wrong — restructuring is a separate trigger.
Question 84
Under IAS 23, the capitalisation of borrowing costs on a qualifying asset must cease when:
Select an option first.
Correct answer: B — Substantially all activities necessary to prepare the asset for its intended use or sale are complete
Explanation: B is correct: capitalisation ceases when the asset is substantially complete — when substantially all activities to prepare it for intended use or sale are complete. Short temporary suspensions do not stop capitalisation, but extended suspensions do. A is wrong — depreciation starts after completion. C is wrong — temporary stoppages don't cease capitalisation. D is wrong — facility expiry is irrelevant; the borrowing costs incurred to date are capitalised.
Question 85
Which of the following situations would require BOTH a provision AND disclosure under IAS 37?
Select an option first.
Correct answer: B — A present obligation where outflow is probable, a reliable estimate exists — the provision is recognised AND the disclosure note provides further detail
Explanation: B is correct: when all three IAS 37 recognition criteria are met, a provision is recognised on the face of the statements AND descriptive disclosure is required in the notes (nature of obligation, expected timing, uncertainties, expected reimbursements). A is wrong — a possible obligation is a contingent liability (disclosed only). C is wrong — remote contingencies require neither recognition nor disclosure. D is wrong — without reliable estimate, a contingent liability is disclosed.
Question 86
Under IFRS 16, a sale and leaseback transaction fails to qualify as a sale (under IFRS 15) when:
Select an option first.
Correct answer: B — The entity retains effective control of the asset (e.g. repurchase option at a price that is not at fair value) — the transaction is treated as a secured borrowing
Explanation: B is correct: if the seller-lessee has a repurchase option or other mechanism retaining control, IFRS 15 criteria for sale recognition are not met — the proceeds are treated as a financial liability (secured borrowing) and the asset remains on the books. A is wrong — short lease term alone does not prevent sale recognition. C is wrong — FV vs carrying amount affects the gain calculation, not whether a sale occurred. D is wrong — under IFRS 16 lessees account for all leases similarly.
Question 87
Under IFRS 13, the 'principal market' is:
Select an option first.
Correct answer: B — The market with the greatest volume and level of activity for the asset or liability — exit price is determined using this market
Explanation: B is correct: IFRS 13 requires fair value to be measured using the principal market (greatest volume and activity). If no principal market exists, the most advantageous market (highest price net of costs) is used. A is wrong — greatest volume is correct but the full definition includes level of activity. C is wrong — the entity's habitual market may differ from the principal market. D is wrong — most advantageous market is a fallback when no principal market exists.
Question 88
An entity has a $2m onerous contract where expected costs exceed expected benefits by $300,000. Under IAS 37, the entity must:
Select an option first.
Correct answer: B — Recognise a provision for the lower of the cost of fulfilling the contract and the cost of exiting/terminating it
Explanation: B is correct: for an onerous contract, IAS 37 requires a provision for the unavoidable costs of meeting the obligations — measured at the lower of (a) costs of fulfilment and (b) penalties for exit. A is wrong — recognition is required, not just disclosure. C is wrong — the full contract cost is not the provision; only the net loss. D is wrong — deferral is not permitted.
Question 89
Under IFRS 9, the fair value option (FVO) to designate a financial liability at FVTPL is only permitted when:
Select an option first.
Correct answer: B — It eliminates or significantly reduces an accounting mismatch that would otherwise arise
Explanation: B is correct: the FVO for financial liabilities is permitted only when it eliminates or significantly reduces an accounting mismatch — where related assets or liabilities are measured on a different basis creating income statement volatility that FVO would reduce. A is wrong — preference is not a criterion. C is wrong — exchange trading is not required. D is wrong — system simplification is not a criterion.
Question 90
When a financial liability is measured at FVTPL under the FVO, changes in fair value due to the entity's own credit risk are:
Select an option first.
Correct answer: B — Recognised in OCI and never recycled to P&L
Explanation: B is correct: under IFRS 9 FVO for liabilities, the own credit risk component of fair value changes is presented in OCI (not P&L) to avoid the counterintuitive situation where an entity recognises a gain because its own creditworthiness deteriorated. A is wrong — own credit changes go to OCI. C is wrong — they must be separated and recognised. D is wrong — they go to OCI.
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