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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 91
Under IAS 38, an intangible asset with an indefinite useful life:
Select an option first.
Correct answer: B — Is not amortised but is tested for impairment at least annually and whenever there is an indicator
Explanation: B is correct: IAS 38 requires that indefinite-life intangibles are not amortised but are tested for impairment at least annually and whenever there is an impairment indicator. A is wrong — no amortisation applies. C is wrong — immediate write-off would be incorrect unless impaired. D is wrong — reclassification to PPE is not required.
Question 92
Under IAS 36, a reversal of an impairment loss on PPE is recognised to the extent:
Select an option first.
Correct answer: B — The increased carrying amount does not exceed what the depreciated historical cost would have been had no impairment been recognised
Explanation: B is correct: impairment reversals on PPE are capped at the carrying amount that would have been reported had no impairment ever occurred (i.e. cost less accumulated depreciation as if no write-down). A is wrong — reversal to original cost would ignore post-impairment depreciation. C is wrong — fair value increase alone is not the cap. D is wrong — management judgment must be supported by objective evidence.
Question 93
Under IFRS 5, the results of a discontinued operation are presented:
Select an option first.
Correct answer: B — As a single amount on the face of the income statement — showing the post-tax profit or loss of the discontinued operation and the post-tax gain or loss on disposal
Explanation: B is correct: IFRS 5 requires a single line on the face of the income statement for discontinued operations (after-tax P&L and gain/loss on disposal), with detail in the notes. A is wrong — including within continuing operations would obscure the distinction. C is wrong — the face presentation is required. D is wrong — OCI is not used for discontinued operations.
Question 94
Under IFRS 9, a reclassification of financial assets between categories is permitted:
Select an option first.
Correct answer: B — Only when the entity changes its business model for managing financial assets — applied prospectively
Explanation: B is correct: IFRS 9 permits reclassification only when the entity changes its business model — a rare, infrequent event. Reclassification is applied prospectively from the reclassification date. A is wrong — at-will reclassification is not permitted. C is wrong — prior year errors are corrected under IAS 8, not IFRS 9 reclassification. D is wrong — risk profile changes do not trigger reclassification.
Question 95
Under IAS 36, cash-generating units (CGUs) are identified as:
Select an option first.
Correct answer: B — The smallest identifiable group of assets that generates cash inflows largely independent of other assets or groups
Explanation: B is correct: a CGU is the smallest group of assets generating substantially independent cash inflows. They are used when an individual asset's recoverable amount cannot be determined independently. A is wrong — individual assets are tested alone where possible. C is wrong — business segments may be larger than CGUs. D is wrong — combining all assets ignores independence.
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Question 96
The 'asset ceiling' test under IAS 19 ensures that a net defined benefit asset is recognised only to the extent of:
Select an option first.
Correct answer: B — The PV of available future economic benefits from refunds or reductions in future contributions
Explanation: B is correct: IAS 19 requires that a net DB asset (plan assets > DBO) is limited to the present value of future economic benefits available through refunds or reductions in future contributions. A is wrong — the DBO determines the liability, not the asset ceiling. C is wrong — FV of plan assets is the gross asset before netting the DBO. D is wrong — past service costs are a separate component of DB expense.
Question 97
Under IFRS 15, a warranty that gives the customer the option to purchase it separately (assurance-type vs service-type) is treated as:
Select an option first.
Correct answer: B — A separate performance obligation — part of the transaction price is allocated to the warranty service
Explanation: B is correct: a service-type warranty (customer can buy separately, or provides additional service beyond assurance) is a distinct performance obligation. Part of the transaction price is allocated to it and recognised over the warranty period. A is wrong — assurance-type warranties are accounted for under IAS 37 as a provision, not a separate PO. C is wrong — IAS 37 applies to assurance-type warranties only. D is wrong — materiality does not override IFRS 15 for distinct performance obligations.
Question 98
Under IFRS 15, a customer loyalty programme creates:
Select an option first.
Correct answer: B — A separate performance obligation — points represent a material right that must have part of the transaction price allocated to it
Explanation: B is correct: loyalty points give customers a material right — they represent a stand-alone selling price component that must be separated from the main sale. Revenue allocated to the points is deferred until points are redeemed or expire. A is wrong — the allocation affects current and future revenue, not just a simple discount. C is wrong — it is a revenue recognition issue, not a marketing expense. D is wrong — it is a contract liability (deferred revenue), not a contingent liability.
Question 99
Under IFRS 15, bill-and-hold arrangements recognise revenue when:
Select an option first.
Correct answer: B — The asset is identified as belonging to the customer, is ready for transfer, the entity cannot use it elsewhere, and the customer has the ability to direct the asset
Explanation: B is correct: IFRS 15 provides specific criteria for bill-and-hold arrangements — the asset must be separately identified, ready for transfer, the entity unable to direct it elsewhere, and the customer must have made a substantive business reason for the arrangement. All must be met before control (and thus revenue) passes. A is wrong — invoice issuance is administrative. C is wrong — cash receipt is irrelevant under IFRS 15. D is wrong — legal title is one indicator of control transfer but not the only one.
Question 100
Under IAS 16, the cost model versus revaluation model choice:
Select an option first.
Correct answer: B — Must be applied consistently to all items within a class of PPE, but different classes may use different models
Explanation: B is correct: IAS 16 requires a consistent policy within each class of assets (e.g. all land and buildings, or all plant and machinery) but different classes may use different measurement models. A is wrong — different classes can use different models. C is wrong — year-by-year changes are not permitted. D is wrong — IAS 16 and IAS 40 models are chosen independently.
Question 101
Under IAS 36, when should an entity test PPE for impairment without waiting for annual indicators?
Select an option first.
Correct answer: B — Only when there is an indication of impairment — indicators include significant adverse changes in technology, market, economic or legal environment
Explanation: B is correct: PPE (unlike goodwill and indefinite-life intangibles) is tested for impairment only when there is an indication — IAS 36 lists external indicators (market decline, adverse changes, interest rate rises reducing VIU) and internal indicators (obsolescence, damage, underperformance). A is wrong — annual testing is only for goodwill and indefinite-life intangibles. C is wrong — no three-year cycle applies. D is wrong — depreciation level is not an impairment indicator.
Question 102
Under IFRS 9, when a financial asset is reclassified from FVTPL to amortised cost:
Select an option first.
Correct answer: A — The fair value at the reclassification date becomes the new gross carrying amount
Explanation: A is correct: on reclassification from FVTPL to amortised cost under IFRS 9, the fair value at the reclassification date becomes the new amortised cost (gross carrying amount). A new effective interest rate is calculated from that date. B is wrong — historical cost is not reinstated; FV at reclassification date is the new starting point. C is wrong — no gain/loss is recognised on reclassification. D is wrong — derecognition does not occur on reclassification.
Question 103
Under IAS 37, provisions are discounted when:
Select an option first.
Correct answer: B — The effect of the time value of money is material — i.e. when settlement is far enough in the future that discounting significantly affects the amount
Explanation: B is correct: IAS 37 requires provisions to be discounted when the time value of money is material — typically when settlement is years away (e.g. decommissioning provisions, long-term warranties). The rate used should be a pre-tax rate reflecting current market assessments and risks specific to the liability. A is wrong — uncertainty about amount is addressed by using the best estimate, not discounting. C is wrong — legal provisions are discounted only if the time value effect is material. D is wrong — risk-adjustment in the discount rate or the cash flows is a choice of technique.
Question 104
Under IFRS 16, the interest expense on a lease liability is calculated using:
Select an option first.
Correct answer: B — The effective interest rate (IBR used at commencement) applied to the opening lease liability balance each period
Explanation: B is correct: the interest on the lease liability is calculated using the effective interest method — applying the initial discount rate (IBR or implicit rate) to the opening lease liability balance for each period. This produces a decreasing interest charge as the liability reduces. A is wrong — there is no coupon on a lease in the traditional sense. C is wrong — the rate is fixed at commencement under IFRS 16. D is wrong — flat-rate allocation is not permitted.
Question 105
Under IAS 19, current service cost is:
Select an option first.
Correct answer: B — The increase in the present value of the defined benefit obligation resulting from employee service in the current period
Explanation: B is correct: current service cost is the present value of the additional pension earned by employees for their service in the current year — charged to profit or loss (service cost line). A is wrong — that is part of the opening DBO. C is wrong — plan amendments create past service cost. D is wrong — pension payments reduce the DBO and plan assets simultaneously.
Question 106
Under IAS 19, the net interest on the net defined benefit liability is:
Select an option first.
Correct answer: B — The discount rate applied to the opening net defined benefit liability (or asset) — recognised in P&L
Explanation: B is correct: net interest = discount rate × opening net DBI (or net DBA). It is recognised in profit or loss and represents the unwinding of the discount on the net position. A is wrong — actual return on assets is used only in remeasurement (OCI); the expected return concept was eliminated. C is wrong — contributions are cash flows reducing the liability. D is wrong — actuarial gains/losses go to OCI.
Question 107
A company grants share options with a market condition (target share price). Under IFRS 2:
Select an option first.
Correct answer: B — Market conditions are incorporated into the grant-date fair value using option pricing models; if market conditions are not met, the expense is still recognised if service conditions are met
Explanation: B is correct: market conditions (e.g. share price targets) are built into the grant-date fair value — if employees fulfill service requirements, the expense is recognised even if the market condition is ultimately not met. No reversal occurs because the market condition was priced at grant date. A is wrong — market conditions are incorporated in the fair value. C is wrong — no reversal for market condition failure. D is wrong — market conditions are specifically market conditions, not non-market vesting conditions.
Question 108
Under IFRS 13, the 'highest and best use' concept applies to:
Select an option first.
Correct answer: B — Non-financial assets — fair value should reflect the price assuming the asset is used in the way that maximises its value from a market participant's perspective
Explanation: B is correct: IFRS 13's highest and best use concept applies specifically to non-financial assets — the fair value assumes market participants would use the asset in the way that maximises value (which may differ from the entity's current use). A is wrong — financial assets use market prices, not highest and best use. C is wrong — liabilities use transfer price concepts. D is wrong — all non-financial assets, not just investment properties.
Question 109
Under IAS 12, the initial recognition exemption means deferred tax is NOT recognised when:
Select an option first.
Correct answer: A — A temporary difference arises on initial recognition of an asset or liability in a transaction that is not a business combination AND affects neither accounting profit nor taxable profit at the time of transaction
Explanation: A is correct: IAS 12 exempts initial recognition differences arising in transactions that are not business combinations AND that affect neither accounting profit nor taxable profit at recognition (e.g. a non-deductible asset purchase). B is wrong — business combinations always give rise to deferred tax recognition. C is wrong — revenue timing differences generate deferred tax. D is wrong — revaluation surpluses generate deferred tax.
Question 110
Under IFRS 5, a discontinued operation is:
Select an option first.
Correct answer: B — A component of an entity that has been disposed of or classified as held for sale — representing a separate major line of business or geographical area
Explanation: B is correct: a discontinued operation under IFRS 5 must be (a) a component of the entity (operations and cash flows that can be distinguished from the rest) AND (b) represent a separate major line of business or geographical area of operations (or a subsidiary acquired exclusively for resale). A is wrong — stopping a product line is not itself a discontinued operation unless it is a major line. C is wrong — held-for-sale assets are not automatically discontinued operations. D is wrong — impaired assets are not discontinued operations.
Question 111
Under IAS 21, when an entity uses a functional currency different from its presentation currency, cumulative translation differences on foreign operations are held in:
Select an option first.
Correct answer: B — A separate equity component — typically called the foreign currency translation reserve — and reclassified to P&L on disposal
Explanation: B is correct: IAS 21 requires cumulative translation differences on foreign operations to be recognised in OCI and accumulated in a separate equity component (FCTR). On disposal of the foreign operation, the FCTR is reclassified (recycled) to profit or loss. A is wrong — FCTR is not retained earnings. C is wrong — it goes to OCI until disposal. D is wrong — goodwill has its own translation treatment.
Question 112
Under IFRS 9, a financial guarantee contract issued is measured at:
Select an option first.
Correct answer: B — Initially at fair value; subsequently at the higher of (a) the ECL allowance and (b) the amount initially recognised less cumulative amortisation
Explanation: B is correct: financial guarantee contracts are initially measured at fair value (typically equal to the guarantee premium received). Subsequently, they are measured at the higher of ECL or the amortised initial amount. A is wrong — subsequent measurement is required. C is wrong — the maximum guarantee amount is not the measurement basis. D is wrong — even if no payment has been required, the liability continues to be measured.
Question 113
The concept of 'substance over form' in financial reporting means:
Select an option first.
Correct answer: B — Transactions and events are accounted for and presented based on their economic substance and financial reality, not solely their legal form
Explanation: B is correct: substance over form is embedded in the Conceptual Framework's requirement for faithful representation — accounting must reflect economic reality. For example, a finance lease is capitalised even if legal title has not transferred. A is wrong — legal form is secondary to economic substance. C is wrong — materiality is a separate concept. D is wrong — substance over form is about classification and recognition, not estimation.
Question 114
Under IAS 16, subsequent expenditure on PPE is capitalised when:
Select an option first.
Correct answer: B — It is probable that the expenditure will result in future economic benefits flowing to the entity above and beyond the originally assessed standard of performance
Explanation: B is correct: IAS 16 capitalises subsequent expenditure that increases the future economic benefits beyond the original assessment (enhancements, upgrades, major inspections). Ordinary repairs and maintenance maintaining the originally assessed performance are expensed. A is wrong — no monetary threshold is specified. C is wrong — replacement of major components can be capitalised but routine replacements are expensed. D is wrong — life extension is one outcome of qualifying expenditure but B is the principle.
Question 115
Under IFRS 15, if an entity is acting as an agent (not principal), revenue is recognised as:
Select an option first.
Correct answer: B — The net amount — the fee or commission earned for arranging the transaction
Explanation: B is correct: an agent has not obtained control of the good or service before providing it to the customer — revenue is the net commission/fee. A is wrong — gross recognition applies to principals who control the goods/services before transfer. C is wrong — cost plus margin is not the agent revenue recognition basis. D is wrong — 50% is not the rule.
Question 116
Under IAS 40, when using the fair value model for investment property, changes in fair value are:
Select an option first.
Correct answer: B — Recognised in profit or loss in the period they arise
Explanation: B is correct: under IAS 40's fair value model, gains and losses from changes in fair value are recognised in profit or loss (not OCI) in the period they arise — this is a key difference from the IAS 16 revaluation model for PPE which uses OCI. A is wrong — IAS 40 FV changes go to P&L, not OCI. C is wrong — no revaluation surplus is created under IAS 40. D is wrong — they must be recognised, not just disclosed.
Question 117
Under IAS 38, an intangible asset is separable if:
Select an option first.
Correct answer: B — It can be separated or divided from the entity and sold, transferred, licensed, rented or exchanged — individually or with a related contract, asset or liability
Explanation: B is correct: separability is one of the two ways an intangible can be identifiable — the ability to be separated and transferred (even if the entity does not intend to do so). A is wrong — registration may evidence separability but is not the definition. C is wrong — finite life does not define separability. D is wrong — business combination acquisition does not in itself make an asset separable.
Question 118
Under IAS 23, the capitalisation rate for general borrowings is:
Select an option first.
Correct answer: B — The weighted average of the borrowing costs applicable to the entity's borrowings outstanding during the period (excluding borrowings made specifically for qualifying assets)
Explanation: B is correct: IAS 23 requires the capitalisation rate for general borrowings to be the weighted average interest rate of all general borrowings outstanding in the period (excluding those specific to qualifying assets). A is wrong — risk-free rate is not used. C is wrong — highest rate would overstate capitalisation. D is wrong — central bank rate is not the prescribed formula.
Question 119
An entity transfers a financial asset but retains substantially all the risks and rewards of ownership. Under IFRS 9, the asset:
Select an option first.
Correct answer: B — Continues to be recognised in full — the entity recognises a financial liability for the proceeds received
Explanation: B is correct: IFRS 9 derecognition requires the entity to have transferred substantially all risks and rewards. If it has retained them (e.g. sold with recourse covering most losses), the transfer is treated as a secured borrowing — the asset remains, and the proceeds become a liability. A is wrong — derecognition criteria are not met. C is wrong — partial recognition is not the answer. D is wrong — legal title transfer is not the IFRS 9 derecognition criterion.
Question 120
Under IAS 33, when calculating diluted EPS for convertible bonds, the adjustment to the numerator is:
Select an option first.
Correct answer: B — Add back the after-tax interest expense on the convertible bonds — since the bonds would not have paid interest if converted
Explanation: B is correct: for convertible bonds in diluted EPS, if the bonds had been converted at the start of the period (or date of issue if later), the interest (net of tax) would not have been paid. Therefore, after-tax interest is added back to earnings, and the additional shares are added to the denominator. A is wrong — interest is added back, not deducted. C is wrong — dividends are for preference shares. D is wrong — numerator adjustment is required.
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