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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 121
Under IAS 8, a material prior period error is corrected by:
Select an option first.
Correct answer: B — Restating the comparative figures presented in the financial statements and adjusting the opening equity of the earliest period presented
Explanation: B is correct: IAS 8 requires retrospective restatement for prior period errors — comparatives are restated as if the error had never occurred, and the cumulative effect is adjusted through opening equity of the earliest period presented. A is wrong — including in current P&L would distort current year results. C is wrong — disclosure without restatement is insufficient for material errors. D is wrong — prospective correction applies to changes in estimates, not errors.
Question 122
Under IFRS 9, 'derecognition' of a financial liability occurs when:
Select an option first.
Correct answer: B — The obligation is discharged, cancelled or expires
Explanation: B is correct: a financial liability is derecognised when extinguished — discharged (paid), cancelled (forgiven by creditor) or expired (no longer legally valid). The difference between the carrying amount and consideration paid is recognised in P&L. A is wrong — management intention is insufficient for derecognition. C is wrong — reclassification to equity is an equity transaction not derecognition. D is wrong — rolling over a matured liability creates a new liability.
Question 123
Under IFRS 13, a 'principal market' is defined as the market that:
Select an option first.
Correct answer: B — Has the greatest volume and level of activity for the asset or liability
Explanation: B is correct: the principal market under IFRS 13 is the market with the greatest volume and level of activity — it is this market's exit price that is used for fair value measurement. If no principal market exists, the most advantageous market (highest net price) is used. A is wrong — highest price defines the most advantageous market, not the principal market. C is wrong — the entity's habitual market may differ. D is wrong — accessibility is not the criterion.
Question 124
Under IAS 19, past service cost arises when:
Select an option first.
Correct answer: B — There is a plan amendment or curtailment that changes the benefits attributed to past service
Explanation: B is correct: past service cost is the change in the DBO for employee service in prior periods resulting from a current year plan amendment or curtailment (change in benefits offered). It is recognised immediately in P&L regardless of whether it is vested or not. A is wrong — additional service increases current service cost. C is wrong — assumption changes are actuarial gains/losses (OCI). D is wrong — discount rate changes also affect actuarial remeasurement.
Question 125
Under IFRS 16, lease term includes:
Select an option first.
Correct answer: B — Non-cancellable period plus optional extension periods the lessee is reasonably certain to exercise plus optional termination periods the lessee is reasonably certain not to exercise
Explanation: B is correct: IFRS 16 defines lease term as the non-cancellable period plus periods covered by an option to extend (if reasonably certain to exercise) and periods covered by an option to terminate (if reasonably certain not to exercise). Economic incentives are assessed. A is wrong — extension options are included if reasonably certain. C is wrong — optional periods are included. D is wrong — economic life may extend beyond the lease.
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Question 126
Under IAS 36, the discount rate used in a value-in-use calculation should be:
Select an option first.
Correct answer: B — A pre-tax rate reflecting current market assessments of the time value of money and risks specific to the asset or CGU
Explanation: B is correct: IAS 36 requires a pre-tax discount rate that reflects the time value of money and asset-specific risks. An entity often starts with its WACC or CAPM-derived rate and adjusts for pre-tax equivalence and asset-specific risks. A is wrong — WACC is post-tax and may need adjustment. C is wrong — risk-free rate excludes risk premiums. D is wrong — cost of equity excludes the debt component.
Question 127
Under IAS 37, an onerous contract provision is the lower of:
Select an option first.
Correct answer: B — The cost of fulfilling the contract and the cost of terminating or exiting the contract
Explanation: B is correct: for an onerous contract, IAS 37 requires a provision for the lower of (a) the net cost of fulfilling (fulfilment costs minus expected revenues) and (b) the cost of exiting/terminating the contract. This represents the minimum net obligation. A is wrong — zero is not a floor (if both options are positive, take the lower). C is wrong — revenues are part of the fulfilment cost calculation. D is wrong — contract price adjustment is not the formula.
Question 128
Which of the following creates a constructive obligation under IAS 37?
Select an option first.
Correct answer: B — A published policy that the entity will refund customers even without a legal requirement to do so — creating a valid expectation in customers
Explanation: B is correct: a constructive obligation arises from the entity's own actions — an established pattern, published policy, or specific statement that creates a valid expectation in third parties that the entity will meet the obligation. A is wrong — legal duties create legal obligations, not constructive ones. C is wrong — capital expenditure commitments are not IAS 37 obligations (no past event has yet occurred). D is wrong — a board resolution alone is insufficient without creating an expectation in the recipients.
Question 129
Under IFRS 2, the expense for an equity-settled award is reversed if:
Select an option first.
Correct answer: C — A non-market vesting condition (e.g. revenue target) is not met
Explanation: C is correct: non-market vesting conditions (performance targets, service periods) are reflected by updating the estimate of shares expected to vest — if ultimately not met, cumulative expense is reversed. Market conditions (price targets) are never reversed. A is wrong — share price changes don't affect equity-settled expense (fixed at grant date). B is wrong — market condition failure does not trigger reversal. D is wrong — a performance condition not met is the same as C.
Question 130
Under IFRS 15, contract costs that are incremental to obtaining a contract (e.g. sales commissions) are:
Select an option first.
Correct answer: B — Capitalised as an asset and amortised on a basis consistent with the transfer of the related goods or services to the customer
Explanation: B is correct: incremental costs of obtaining a contract (costs that would not have been incurred but for obtaining the contract) are capitalised if the entity expects to recover them. They are amortised over the expected contract period (or expected customer relationship if multiple expected renewals). A is wrong — expensing is only permitted if the amortisation period would be one year or less (practical expedient). C is wrong — they are not inventory costs. D is wrong — they are costs, not revenue deductions.
Question 131
Under IAS 21, if exchange rates change significantly after the reporting date but before the financial statements are authorised for issue:
Select an option first.
Correct answer: B — This is a non-adjusting event under IAS 10 — the statements are not adjusted but disclosure of the change may be required if material
Explanation: B is correct: exchange rate movements after the reporting date do not indicate conditions existing at the year end — they are non-adjusting events under IAS 10. If material, disclosure of the change and its potential impact is required. A is wrong — restatement is only for adjusting events. C is wrong — updating rates would be misleading about the year-end position. D is wrong — note disclosure may be required but the statements are not adjusted.
Question 132
Under IFRS 9, for a debt instrument measured at FVTOCI, when the instrument is derecognised, the cumulative OCI gain or loss is:
Select an option first.
Correct answer: B — Reclassified (recycled) to profit or loss
Explanation: B is correct: for FVTOCI debt instruments, the cumulative fair value changes in OCI are reclassified to profit or loss on derecognition — unlike equity instruments at FVTOCI (where OCI is never recycled). A is wrong — permanent retention applies to equity instruments. C is wrong — direct transfer to retained earnings bypasses P&L. D is wrong — amortisation is not the treatment for recycling.
Question 133
Under IFRS 16, when a lease is modified and the modification is treated as a new separate lease:
Select an option first.
Correct answer: C — A new ROU asset and lease liability are created for the additional right-of-use granted, while the original lease continues unchanged
Explanation: C is correct: when a lease modification grants additional rights-of-use at a price commensurate with standalone price, it is a new separate lease — a new ROU asset and liability are recognised for the additional scope; the original lease is unaffected. A is wrong — the original lease continues but a new one is added. B is wrong — remeasuring the original applies when modification is not a separate lease. D is wrong — they are not combined.
Question 134
Under IAS 12, deferred tax liabilities on temporary differences relating to investments in subsidiaries, associates and joint ventures are recognised UNLESS:
Select an option first.
Correct answer: B — The parent/investor can control the timing of the reversal AND it is probable that the temporary difference will not reverse in the foreseeable future
Explanation: B is correct: IAS 12 provides an exemption from recognising DTLs on undistributed profits of subsidiaries/associates/JVs when (1) the parent/investor controls the timing of reversal AND (2) it is probable that the difference will not reverse in the foreseeable future (e.g. profits will be permanently reinvested). A is wrong — the exemption requires meeting both conditions. C is wrong — profitability is irrelevant. D is wrong — no tax rate threshold.
Question 135
Under IFRS 15, the transaction price of a contract with a 'most likely amount' method for variable consideration:
Select an option first.
Correct answer: B — Uses the single most likely outcome — appropriate when the outcome is binary or has a small number of possible amounts
Explanation: B is correct: IFRS 15 allows two methods for estimating variable consideration: (1) expected value (probability-weighted average) — best for large numbers of outcomes, and (2) most likely amount — best for binary or few-outcome situations. A is wrong — that is the expected value method. C is wrong — maximum amount overstates revenue. D is wrong — variable consideration must be estimated.
Question 136
Under IFRS 9, purchased or originated credit-impaired (POCI) assets have their ECL recognised as:
Select an option first.
Correct answer: B — Lifetime ECL from inception, but the effective interest rate is calculated on a credit-adjusted basis (expected cash flows including expected credit losses)
Explanation: B is correct: POCI assets are already credit-impaired at acquisition. Lifetime ECL is recognised from inception, but the interest income is calculated using a credit-adjusted EIR (which already incorporates expected credit losses). Changes in lifetime ECL are recognised as gains/losses. A is wrong — POCI always uses lifetime ECL. C is wrong — ECL is recognised from inception. D is wrong — full provision is not the correct measurement.
Question 137
Under IFRS 5, when a disposal group is classified as held for sale and subsequently falls below the lower of carrying amount and FVLCTS:
Select an option first.
Correct answer: B — Any impairment loss is recognised in profit or loss; on remeasurement, gains are recognised only to the extent of prior write-downs
Explanation: B is correct: IFRS 5 disposal groups: impairment losses on write-down to FVLCTS are recognised in P&L. Subsequent increases (if FVLCTS increases) are limited to the cumulative impairment loss previously recognised — similar to the IAS 36 approach. A is wrong — allocation follows IFRS 5 / IAS 36 hierarchy (goodwill first within the group). C is wrong — equal spreading is not prescribed. D is wrong — impairment is recognised before the sale is completed.
Question 138
Under IAS 16, depreciation must reflect:
Select an option first.
Correct answer: B — The expected pattern of consumption of the asset's future economic benefits — reviewed at least at each year end
Explanation: B is correct: IAS 16 requires depreciation to reflect the pattern of consumption of economic benefits. The method, useful life and residual value are reviewed at each year end and revised prospectively if expectations change. A is wrong — useful life must be reviewed and revised. C is wrong — any systematic method reflecting the consumption pattern is acceptable. D is wrong — tax depreciation rates may differ from IAS 16 requirements.
Question 139
Under IFRS 9, modification of a financial asset that does not result in derecognition creates:
Select an option first.
Correct answer: B — A modification gain or loss recognised in P&L — the difference between the new expected cash flows (discounted at the original EIR) and the old carrying amount
Explanation: B is correct: when a financial asset is modified but not derecognised, the carrying amount is recalculated as the PV of modified cash flows using the original EIR; the difference from the old carrying amount is a modification gain/loss in P&L. A is wrong — the original asset continues, no new asset is recognised. C is wrong — modification is recognised immediately. D is wrong — modification gain/loss is distinct from ECL.
Question 140
Under IFRS 15, the 'input method' for measuring progress to completion uses:
Select an option first.
Correct answer: B — Costs incurred relative to total expected costs (or labour hours expended) — appropriate when inputs are consumed in direct proportion to benefit delivered
Explanation: B is correct: input methods measure progress based on effort consumed (costs or hours) relative to total expected effort — appropriate when inputs are consumed evenly as performance progresses. A is wrong — value delivered is an output method. C is wrong — milestones are output methods. D is wrong — units delivered are also output methods.
Question 141
Under IAS 40, property is transferred from investment property to owner-occupied property at:
Select an option first.
Correct answer: B — The fair value of the property at the date of change in use — becoming the deemed cost going forward under IAS 16
Explanation: B is correct: when investment property (measured at fair value under IAS 40) is reclassified to owner-occupied (IAS 16), the fair value at the date of reclassification becomes the deemed cost for subsequent IAS 16 depreciation purposes. A is wrong — book value under IAS 40 is fair value anyway; this is the correct starting point. C is wrong — original cost is not used. D is wrong — no lower-of comparison applies here.
Question 142
Under IAS 38, an intangible asset with a finite useful life must be amortised:
Select an option first.
Correct answer: B — On a systematic basis over its useful life — the amortisation method must reflect the expected pattern of consumption of economic benefits
Explanation: B is correct: IAS 38 requires systematic amortisation over the finite useful life, using a method reflecting the pattern of consumption. Straight-line is used if the pattern cannot be determined reliably. A is wrong — amortisation starts when the asset is available for use. C is wrong — IAS 38 amortisation is independent of PPE. D is wrong — methods other than straight-line are permitted if they better reflect consumption.
Question 143
Under IFRS 9, 'at amortised cost' measurement uses the effective interest rate to:
Select an option first.
Correct answer: B — Allocate interest income over the life of the instrument so that a constant periodic return is achieved on the gross carrying amount
Explanation: B is correct: the effective interest method ensures that interest income recognised in P&L represents a constant percentage of the carrying amount — whether the instrument was issued at a discount or premium. A is wrong — the asset is not remeasured to discounted cash flows each period (that would be FVTPL). C is wrong — no fair value adjustments are made. D is wrong — applying EIR to nominal value gives the coupon rate method.
Question 144
Under IAS 2, inventories are measured at the lower of cost and:
Select an option first.
Correct answer: B — Net realisable value — the estimated selling price in ordinary course of business less estimated costs to complete and sell
Explanation: B is correct: IAS 2 requires inventories to be measured at the lower of cost and NRV. NRV = estimated selling price − estimated costs of completion and selling costs. A is wrong — NBV is a PPE concept. C is wrong — replacement cost is entry price not exit price. D is wrong — FVLCTS is an IFRS 5/IAS 41 measure, not IAS 2.
Question 145
Under IFRS 9, transaction costs on financial assets measured at amortised cost are:
Select an option first.
Correct answer: B — Included in the initial measurement of the asset, increasing the amortised cost and reducing the effective interest rate
Explanation: B is correct: transaction costs on amortised cost assets are included in initial measurement (added to the asset's cost for assets, deducted from proceeds for liabilities). This affects the effective interest rate calculation. A is wrong — immediate expensing is only for FVTPL assets. C is wrong — they are included. D is wrong — they are part of the asset measurement.
Question 146
Under IAS 32, a financial instrument is classified as equity when:
Select an option first.
Correct answer: B — The instrument does not contain a contractual obligation to deliver cash or another financial asset, and if settled in the entity's own equity instruments — either a fixed number of shares for a fixed amount of cash (fixed-for-fixed)
Explanation: B is correct: IAS 32 equity classification requires: no contractual obligation to deliver cash (no mandatory interest/repayment), and if settled in own shares — a fixed number for a fixed amount (fixed-for-fixed). Variable settlements create financial liabilities. A is wrong — receiving cash is relevant to issuance, not classification. C is wrong — variable dividends create a liability if there is a contractual obligation. D is wrong — puttable instruments are generally liabilities.
Question 147
Under IAS 7, the indirect method for operating cash flows starts with:
Select an option first.
Correct answer: B — Profit before tax, adjusted for non-cash items and changes in working capital
Explanation: B is correct: the indirect method reconciles profit before tax to net cash from operating activities by: adding back non-cash charges (depreciation, amortisation, impairment), adjusting for changes in working capital (inventory, receivables, payables), and deducting tax paid. A is wrong — cash received from customers appears in the direct method. C is wrong — operating profit is used in some formats but profit before tax is the starting point. D is wrong — net profit after tax is not the starting point under the indirect method.
Question 148
Under IAS 7, interest paid may be classified as:
Select an option first.
Correct answer: B — Operating or financing cash flow — as an accounting policy choice, applied consistently
Explanation: B is correct: IAS 7 allows entities to classify interest paid as either operating (because it enters the calculation of profit) or financing (because it is a cost of obtaining financial resources) — consistently applied. Dividends paid may be operating or financing. A is wrong — it may also be financing. C is wrong — it may also be operating. D is wrong — investing is not a permitted classification for interest paid.
Question 149
Under IAS 7, dividends received may be classified as:
Select an option first.
Correct answer: B — Operating or investing cash flows — as an accounting policy choice
Explanation: B is correct: dividends received may be classified as operating (because they enter the profit calculation) or investing (because they are a return on investment). Both are permitted under IAS 7, applied consistently. A is wrong — investing is also permitted. C is wrong — operating is also permitted. D is wrong — financing classification is not permitted for dividends received.
Question 150
Under IAS 7, the purchase of PPE is classified in the statement of cash flows as:
Select an option first.
Correct answer: B — An investing cash outflow
Explanation: B is correct: acquisition of property, plant and equipment is an investing activity — it involves deploying capital in long-term productive assets. A is wrong — operating activities relate to principal revenue-producing activities. C is wrong — financing activities relate to capital structure. D is wrong — it is a cash transaction.
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