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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 151
Under IFRS 16, the principal repayment element of a lease payment is classified in the cash flow statement as:
Select an option first.
Correct answer: B — A financing cash outflow — repayment of the lease liability principal
Explanation: B is correct: under IFRS 16, lease payments are split into principal (repayment of the lease liability — financing outflow) and interest (operating or financing, per IAS 7 policy choice). A is wrong — principal repayment is financing, not operating. C is wrong — investing relates to long-term asset acquisition. D is wrong — it is a cash payment.
Question 152
Under IAS 7, the effect of exchange rate changes on cash held in foreign currencies is presented as:
Select an option first.
Correct answer: B — A separate reconciling item at the bottom of the cash flow statement — not included in operating, investing or financing
Explanation: B is correct: IAS 7 requires the effect of exchange rate changes on foreign currency cash balances to be presented separately as a reconciling item between opening and closing cash, so that users can see the total change in cash excluding exchange effects. A is wrong — it is not an operating activity. C is wrong — it is not financing. D is wrong — it is not investing.
Question 153
Under IAS 37, the discount rate applied to long-term provisions should reflect:
Select an option first.
Correct answer: B — A pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability
Explanation: B is correct: IAS 37 requires a pre-tax discount rate that captures the time value of money and the specific risks of the liability (not general business risk, which should be in the cash flow estimates). A is wrong — cost of equity is post-tax and entity-specific, not liability-specific. C is wrong — risk-free rate ignores liability-specific risk premiums. D is wrong — WACC is a blended entity-wide rate.
Question 154
Under IFRS 13, when no Level 1 or Level 2 inputs are available, entities use Level 3 inputs. An example of a Level 3 input is:
Select an option first.
Correct answer: C — Management's own cash flow projections for an asset with no market comparable
Explanation: C is correct: Level 3 inputs are unobservable — they are based on the entity's own assumptions about what market participants would use, such as internally generated cash flow forecasts for a unique, illiquid asset. A is wrong — that is Level 1. B is wrong — an observable yield curve is Level 2. D is wrong — bank-quoted swap rates are observable (Level 2).
Question 155
Under IFRS 9, the 'SPPI' test (solely payments of principal and interest) is failed when:
Select an option first.
Correct answer: C — The contractual cash flows include features that introduce exposure to risks unrelated to a basic lending arrangement — such as equity-linked returns or leverage
Explanation: C is correct: the SPPI test is failed when cash flows are not solely principal and interest — for example, if returns are linked to equity performance, a commodity index, or if contractual terms introduce leverage that magnifies exposure. These features mean the instrument is not consistent with a basic lending arrangement. A is wrong — fixed rate is consistent with SPPI. B is wrong — variable rates tied to a benchmark (e.g. LIBOR/SOFR) pass SPPI if they reflect time value, credit risk and liquidity. D is wrong — foreign currency denomination alone does not fail SPPI.
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Question 156
Under IAS 16, when a major inspection or overhaul cost is incurred on PPE, it should be:
Select an option first.
Correct answer: B — Capitalised as a component if it meets the asset recognition criteria and any remaining carrying amount of the previous inspection is derecognised
Explanation: B is correct: major inspection costs that meet the IAS 16 recognition criteria (future economic benefits probable, cost reliably measurable) are capitalised as a separate component. The carrying amount of the previous inspection component is derecognised to avoid double-counting. A is wrong — major inspections are not ordinary maintenance. C is wrong — adding to accumulated depreciation is incorrect. D is wrong — capitalisation, not just disclosure, is required.
Question 157
Under IAS 41, the fair value of a biological asset is reduced by costs to sell to give the measurement amount. Costs to sell include:
Select an option first.
Correct answer: B — Costs that are necessary to bring the biological asset to market — transport, broker commissions, levies and transfer taxes
Explanation: B is correct: costs to sell under IAS 41 are incremental costs directly attributable to selling the asset — such as commissions, transport and any duties directly related to the sale. A is wrong — depreciation is not a cost to sell. C is wrong — finance costs are excluded. D is wrong — general overheads are excluded.
Question 158
Which of the following is an example of a 'performance obligation' under IFRS 15 that is satisfied at a point in time?
Select an option first.
Correct answer: C — Selling a standard consumer electronics product in a retail store
Explanation: C is correct: for a standard product sold in a retail transaction, control transfers to the customer at the point of sale — revenue is recognised at that single point in time. A is wrong — maintenance services are typically over-time POs. B is wrong — bespoke construction typically qualifies for over-time recognition. D is wrong — portfolio management is an over-time service.
Question 159
Under IAS 32, a compound financial instrument (e.g. a convertible bond) must be split into:
Select an option first.
Correct answer: B — The liability component and equity component at initial recognition — based on the residual approach (equity = total proceeds minus the fair value of the liability component)
Explanation: B is correct: IAS 32 requires compound instruments to be split at inception. The liability = PV of cash flows if not converted (coupon and redemption, discounted at market rate for similar non-convertible debt). Equity = residual (total proceeds minus liability). A is wrong — the whole instrument is not equity. C is wrong — the whole instrument is not a liability. D is wrong — three-way split is not the IAS 32 approach.
Question 160
Under IFRS 9, the 'business model' for financial assets is assessed at the level of:
Select an option first.
Correct answer: B — A portfolio or group of financial assets managed together — reflecting how management actually manages the group
Explanation: B is correct: the business model is assessed at the portfolio level — how the entity manages groups of assets to achieve a particular objective (hold to collect, hold to collect and sell, or other/trading). An entity can have multiple business models simultaneously for different portfolios. A is wrong — instrument-level assessment would create inconsistency within a managed portfolio. C is wrong — a single entity-wide model ignores how different portfolios are managed. D is wrong — the counterparty is irrelevant to business model assessment.
Question 161
Under IAS 19, when a defined benefit plan is curtailed (significantly reduced number of employees covered):
Select an option first.
Correct answer: B — A gain or loss arising from the curtailment is recognised in P&L in the period the curtailment occurs
Explanation: B is correct: a curtailment reduces future service obligations — IAS 19 requires the gain or loss to be recognised in P&L in the period it occurs. Curtailments reduce the DBO (gain) or may sometimes increase it if the curtailment increases benefits. A is wrong — curtailment typically reduces the DBO. C is wrong — frozen DBO for remaining employees is part of the calculation but C overstates the effect. D is wrong — remeasurements from curtailments go to P&L but other actuarial gains/losses remain in OCI.
Question 162
Under IFRS 2, for cash-settled share-based payment transactions, the liability is initially measured at:
Select an option first.
Correct answer: B — The fair value of the liability at the grant date — using an option pricing model
Explanation: B is correct: for cash-settled awards (e.g. share appreciation rights), a liability is recognised from inception. The liability is measured at the fair value of the obligation at each reporting date (remeasured), not just at grant date. Initially it is the fair value at the reporting date of the period the award is granted. A is wrong — intrinsic value is a simplified method permitted only in rare circumstances. C is wrong — nominal value is not used. D is wrong — the liability is recognised during the vesting period, not just at vesting.
Question 163
Under IAS 10, a dividend declared after the reporting date but before the financial statements are authorised for issue:
Select an option first.
Correct answer: B — Is a non-adjusting event — the financial statements are not adjusted, but disclosure of the dividend is required
Explanation: B is correct: dividends declared after the reporting date do not relate to an obligation existing at the year end — they are non-adjusting events under IAS 10. The financial statements are not adjusted, but material post-balance-sheet dividends should be disclosed. A is wrong — no liability existed at year end (the dividend was not declared until after). C is wrong — retrospective adjustment is not required. D is wrong — comparative equity is not reduced.
Question 164
Under IFRS 15, when a customer pays in advance and revenue is recognised over time, the entity recognises:
Select an option first.
Correct answer: B — A contract liability (deferred revenue) initially, then recognises revenue as performance obligations are satisfied
Explanation: B is correct: cash received before performance creates a contract liability (obligation to transfer goods/services). Revenue is recognised as the entity performs and satisfies its performance obligations over the contract period. A is wrong — revenue recognition is based on performance, not cash receipt. C is wrong — the obligation is a contract liability under IFRS 15, not an IFRS 9 financial liability. D is wrong — it is not equity.
Question 165
Under IFRS 3, all business combinations are accounted for using:
Select an option first.
Correct answer: B — Acquisition method
Explanation: B is correct: IFRS 3 mandates the acquisition method for all business combinations — identifying an acquirer, measuring identifiable net assets at fair value, and recognising goodwill. A is wrong — pooling was prohibited. C is wrong — proportional consolidation is now prohibited for joint ventures. D is wrong — equity method is for associates and JVs.
Question 166
Under IFRS 10, control requires all of the following EXCEPT:
Select an option first.
Correct answer: D — Holding more than 50% of shares
Explanation: D is correct — holding more than 50% is NOT a requirement of the control definition (though it is a common route to control). The three elements are power, variable returns and the link between them. A, B and C are all required elements.
Question 167
Goodwill under IFRS 3 is calculated as:
Select an option first.
Correct answer: B — FV of consideration + FV of NCI − FV of identifiable net assets acquired
Explanation: B is correct: Goodwill = (Consideration + NCI FV + Previously held interest FV) − FV of identifiable net assets. B is wrong — using book value violates IFRS 3. C is wrong — omits NCI. D is wrong — omits NCI.
Question 168
NCI at acquisition can be measured at:
Select an option first.
Correct answer: C — Either fair value OR proportionate share — a policy choice per acquisition
Explanation: C is correct: IFRS 3 allows full goodwill (NCI at FV) or partial goodwill (NCI at proportionate share of FV of identifiable net assets) — chosen per acquisition. A is wrong — partial method is also allowed. B is wrong — full goodwill/FV method is also allowed. D is wrong — book value is not permitted.
Question 169
Acquisition-related costs under IFRS 3 are:
Select an option first.
Correct answer: B — Expensed as incurred in profit or loss
Explanation: B is correct: IFRS 3 (revised) requires transaction costs (legal, advisory fees) to be expensed — they are not part of the consideration transferred. A is wrong — capitalisation is prohibited. C is wrong — NCI goodwill is unrelated. D is wrong — transaction costs don't affect net asset measurement.
Question 170
Intragroup unrealised profit in inventory must be eliminated on consolidation because:
Select an option first.
Correct answer: B — The group is presented as a single entity — internal profits are not realised from the group's perspective until goods are sold to a third party
Explanation: B is correct: from the group's perspective as a single entity, the intragroup sale has not transferred profit outside the group — eliminating the unrealised portion ensures inventory is stated at cost to the group. A is wrong — arm's length pricing is irrelevant to the consolidation principle. C is wrong — the reason is conceptual, not regulatory. D is wrong — 100% elimination is required.
Question 171
The equity method for an associate requires the investor to:
Select an option first.
Correct answer: B — Share in associate's post-acquisition profits/losses and OCI within its own financial statements
Explanation: B is correct: equity method — investment adjusted for share of P&L (in P&L) and OCI (in OCI); dividends reduce carrying amount. A is wrong — line-by-line is subsidiaries. C is wrong — cost method ignores post-acquisition changes. D is wrong — proportional consolidation is for some joint operations.
Question 172
Significant influence is presumed when an investor holds:
Select an option first.
Correct answer: B — 20%–50% voting rights, unless evidence to the contrary
Explanation: B is correct: IAS 28 presumes significant influence at 20%–50%. This is rebuttable — may exist below 20% or be absent above 50%. A is wrong — over 50% is typically control. C is wrong — 10% is not the IAS 28 threshold. D is wrong — below 20% is below the presumption threshold.
Question 173
Under IFRS 11, an interest in a joint venture is accounted for using:
Select an option first.
Correct answer: B — The equity method under IAS 28
Explanation: B is correct: IFRS 11 requires equity method for joint ventures (rights to net assets). A is wrong — line-by-line is prohibited for JVs. C is wrong — proportional consolidation is prohibited for JVs. D is wrong — FVTPL is a financial instrument measurement.
Question 174
At acquisition, identifiable assets and liabilities of the acquiree are measured at:
Select an option first.
Correct answer: B — Fair values at acquisition date
Explanation: B is correct: IFRS 3 requires fair value measurement of all identifiable assets and liabilities at acquisition — generating fair value adjustments. A is wrong — book values do not represent what was purchased. C is wrong — lower of book/FV is not IFRS 3. D is wrong — cost less depreciation may approximate book value.
Question 175
A bargain purchase (negative goodwill) arises when:
Select an option first.
Correct answer: B — FV of identifiable net assets exceeds consideration + NCI FV
Explanation: B is correct: if FV of net assets > (consideration + NCI + previous interest), the difference is a bargain purchase gain — recognised immediately in P&L. A is wrong — paying more than FV gives positive goodwill. C is wrong — intangibles are included in net assets. D is wrong — NCI measurement choice affects the calculation.
Question 176
A parent increases its ownership from 60% to 80% (buying from NCI) without losing control. This is:
Select an option first.
Correct answer: B — An equity transaction — difference between consideration and change in NCI in equity
Explanation: B is correct: IFRS 10 classifies within-control ownership changes as equity transactions — no P&L gain/loss; the difference goes to equity. A is wrong — goodwill is not remeasured. C is wrong — no P&L impact. D is wrong — deconsolidation only occurs on loss of control.
Question 177
On loss of control, which is recognised in profit or loss?
Select an option first.
Correct answer: B — Gain or loss = proceeds + FV of retained interest − carrying amount of net assets (incl. goodwill) − NCI carrying amount
Explanation: B is correct: consolidated disposal gain includes proceeds + FV of retained interest − derecognised net assets (incl. goodwill) − NCI CA. Retained interest is remeasured to FV. A is wrong — P&L gain/loss is recognised. C is wrong — historical cost is irrelevant. D is wrong — NCI accumulated profits form part of derecognised net assets.
Question 178
Contingent consideration in a business combination under IFRS 3:
Select an option first.
Correct answer: B — Is included at FV at acquisition date; subsequent remeasurement depends on classification
Explanation: B is correct: contingent consideration is part of total consideration at acquisition-date FV. If classified as a liability, it is remeasured to FV with changes in P&L. Equity classification is not remeasured. A is wrong — IFRS 3 requires inclusion at acquisition. C is wrong — accrual requires earlier recognition. D is wrong — maximum amount overstates consideration.
Question 179
Foreign subsidiary assets and liabilities are translated for consolidation using:
Select an option first.
Correct answer: B — Closing spot rate at the reporting date
Explanation: B is correct: IAS 21 requires all assets and liabilities of a foreign operation to be translated at the closing rate at the reporting date. A is wrong — historical rate applies to equity items. C is wrong — average rate is for income and expenses. D is wrong — acquisition date rate is used for initial goodwill only.
Question 180
The income statement of a foreign subsidiary is translated using:
Select an option first.
Correct answer: B — Rates at transaction dates (or average rate as approximation)
Explanation: B is correct: IAS 21 requires income and expenses at transaction date rates, approximated by the average rate if rates don't fluctuate significantly. A is wrong — closing rate is for the balance sheet. C is wrong — historical rates are for equity. D is wrong — last day = closing rate, which is for the balance sheet.
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