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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 241
Under IAS 28, the equity method must be discontinued when:
Select an option first.
Correct answer: B — The investor's interest is classified as held for sale under IFRS 5
Explanation: B is correct: when an interest in an associate is classified as held for sale under IFRS 5, the equity method ceases — the investment is measured at the lower of carrying amount and FVLCTS. A is wrong — losses from associates reduce the carrying amount; the equity method continues. C is wrong — share price decline may indicate impairment but does not stop equity method. D is wrong — revenue decline alone does not affect the equity method.
Question 242
Under IFRS 3, a pre-existing relationship between the acquirer and acquiree (e.g. a lawsuit) must be:
Select an option first.
Correct answer: B — Settled separately from the business combination — the settlement amount is based on fair value of the claim (not consideration transferred) and recognised in P&L
Explanation: B is correct: pre-existing relationships (e.g. a lawsuit between the parties) must be settled separately from the business combination. The settlement amount (typically the lesser of what the acquirer would have had to pay to settle the claim and the off-market element) is excluded from goodwill and recognised in P&L. A is wrong — pre-existing relationships are not part of goodwill. C is wrong — they cannot be ignored. D is wrong — book value is not the measurement basis.
Question 243
Under IFRS 10, the parent's reporting currency and subsidiary's functional currency differ. When eliminating intragroup balances:
Select an option first.
Correct answer: B — Each entity translates its own balance to the group presentation currency; differences arising on elimination of intragroup monetary items are recognised in the FCTR as part of the consolidation process
Explanation: B is correct: when parent has a receivable and subsidiary a payable (both in different currencies), each entity translates the balance to presentation currency; they may not equal each other. The residual difference on elimination goes to the FCTR rather than to P&L (as this is a long-term intercompany balance treated as part of the net investment). A is wrong — the parent's currency alone is not used. C is wrong — historical rate is for equity items. D is wrong — averaging is not the solution.
Question 244
An entity holds 28% of an associate. The associate reports a $1,000,000 loss for the year. The investor's share is $280,000 which exceeds the carrying amount of $200,000. The investor should:
Select an option first.
Correct answer: B — Recognise $200,000 reducing the carrying amount to nil, then cease recognising losses unless the investor has guaranteed the associate's debts
Explanation: B is correct: IAS 28 stops recognising losses once the investment reaches nil. The investor recognises $200,000 reducing the investment to zero, then stops. If the investor has guaranteed debts or has incurred obligations on behalf of the associate, further losses are recognised. A is wrong — recognition stops at nil carrying amount. C is wrong — $140,000 = 50% is not supported. D is wrong — losses are recognised up to the carrying amount.
Question 245
Under IAS 21, monetary items that form part of the net investment in a foreign operation (long-term intercompany balances with no planned settlement) generate exchange differences that go to:
Select an option first.
Correct answer: B — The foreign currency translation reserve in OCI — reclassified to P&L on disposal of the foreign operation
Explanation: B is correct: exchange differences on monetary items that are in substance part of the net investment (quasi-equity loans with no foreseeable repayment) are recognised in OCI as part of the FCTR, recycled to P&L on disposal of the foreign operation. A is wrong — normal monetary items' exchange differences go to P&L; net investment items go to OCI. C is wrong — goodwill is unaffected. D is wrong — retained earnings are not directly adjusted.
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Question 246
Under IFRS 3, deferred tax recognised on fair value adjustments in a business combination affects the goodwill calculation because:
Select an option first.
Correct answer: C — The net identifiable assets are reduced by DTLs (on FV uplifts) or increased by DTAs — this changes the amount subtracted in the goodwill formula, increasing goodwill when DTLs are recognised
Explanation: C is correct: DTLs recognised on FV uplifts (e.g. asset revalued up in acquisition) reduce the net identifiable assets → goodwill is higher. DTAs on acquired losses increase net identifiable assets → goodwill is lower. A is wrong — DTAs reduce goodwill (increase net assets subtracted). B is wrong — DTLs reduce, not increase, net assets. D is wrong — deferred tax is included.
Question 247
When a group entity has a functional currency that is a hyperinflationary currency, IAS 29 requires:
Select an option first.
Correct answer: B — Financial statements to be restated to current purchasing power units before translation — the restatement gain/loss is recognised in P&L
Explanation: B is correct: IAS 29 requires all non-monetary items and P&L to be restated using a general price index. The restatement gain/loss (monetary gain/loss) goes to P&L. The restated statements are then translated at the closing rate for consolidation. A is wrong — exclusion is not permitted. C is wrong — historical costs are restated. D is wrong — functional currency is determined by economic environment, not inflation alone.
Question 248
Under IFRS 10, a reverse acquisition occurs when:
Select an option first.
Correct answer: B — The entity that issues shares (legal acquirer) is identified as the acquiree for accounting purposes — the entity that obtains control is the accounting acquirer even if it did not issue shares
Explanation: B is correct: in a reverse acquisition, the legal subsidiary is the accounting acquirer (it obtains control of the combined entity). IFRS 3 is applied from the perspective of the accounting acquirer. A is wrong — size is not determinative. C is wrong — a subsidiary cannot legally acquire its parent. D is wrong — NCI level does not define reverse acquisition.
Question 249
Under IFRS 3, if the purchase price allocation is not complete at the reporting date, IFRS 3 allows:
Select an option first.
Correct answer: B — Recognising provisional amounts, subject to revision within the 12-month measurement period, with retrospective restatement of comparatives when finalised
Explanation: B is correct: IFRS 3's measurement period allows provisional fair values to be recognised if the acquisition-date measurements are incomplete at reporting. These are finalised (and comparatives restated) within 12 months of the acquisition date. A is wrong — provisional goodwill must be recognised based on available information. C is wrong — the acquisition must be recognised from the acquisition date. D is wrong — all provisional amounts (not just goodwill) are subject to revision.
Question 250
The exchange difference on translating the opening net assets of a foreign subsidiary at closing rate (rather than opening rate) represents:
Select an option first.
Correct answer: B — An unrealised translation gain or loss that forms part of the movement in the FCTR during the year
Explanation: B is correct: opening net assets × (closing rate − opening rate) = translation difference on opening net assets. This unrealised gain or loss is part of the total FCTR movement for the year and is recognised in OCI. It represents changes in the sterling/reporting currency equivalent of the foreign operation's opening position. A is wrong — the operation has not been sold, so it is unrealised. C is wrong — deferred tax is separate. D is wrong — goodwill impairment is a separate assessment.
Question 251
Under IAS 28, intercompany profits on transactions with associates are eliminated to the extent of:
Select an option first.
Correct answer: B — The investor's proportionate share of the profit
Explanation: B is correct: IAS 28 requires elimination of only the investor's share of unrealised gains (not 100%, since the associate has other shareholders). For example, if a 30% owned associate sells to the investor and there is $100 unrealised profit in the inventory, the investor eliminates $30 (30%). A is wrong — 100% elimination applies to subsidiaries. C is wrong — NCI percentage would be the portion not eliminated. D is wrong — 50% is not the rule.
Question 252
Under IFRS 3, the acquirer must reassess and potentially recognise intangible assets of the acquiree that were not previously recognised by the acquiree because:
Select an option first.
Correct answer: B — IFRS 3 has different recognition criteria from IAS 38 — under IFRS 3, an asset need only be identifiable (separable or arising from legal/contractual rights) to be recognised at fair value, regardless of IAS 38's probability and reliable measurement requirements
Explanation: B is correct: IFRS 3 requires recognition of all identifiable intangible assets regardless of whether the acquiree had recognised them — removing the probability and reliable measurement hurdles of IAS 38. This commonly results in recognising customer relationships, technology, brands and order backlogs. A is wrong — assets not previously recognised by the acquiree are a key feature of purchase price allocation. C is wrong — omission intent is irrelevant. D is wrong — value enhancement is not the reason.
Question 253
When a foreign subsidiary is partially disposed of (parent reduces from 80% to 60%, retaining control) and the subsidiary has a FCTR of $50,000, which of the following applies?
Select an option first.
Correct answer: B — No FCTR is recycled — partial disposal with retained control is an equity transaction; FCTR remains in equity and continues to accumulate
Explanation: B is correct: partial disposal retaining control is an equity transaction under IFRS 10. No FCTR is recycled to P&L — the FCTR continues to accumulate. Recycling only occurs on disposal with loss of control. A is wrong — recycling occurs only on loss of control. C is wrong — no proportionate recycling applies here. D is wrong — FCTR is not eliminated on a within-control transaction.
Question 254
Under IAS 28, goodwill included in the carrying amount of an equity-accounted associate is tested for impairment:
Select an option first.
Correct answer: B — As part of the overall investment — the entire carrying amount of the investment is tested when there are indicators of impairment
Explanation: B is correct: under IAS 28, the equity-method investment (which includes embedded goodwill) is tested as a single asset for impairment when there are indicators. The recoverable amount of the entire investment is compared to its carrying amount. A is wrong — annual testing applies to consolidated goodwill, not equity method. C is wrong — it is tested as part of the whole investment. D is wrong — it is subject to impairment as part of the investment.
Question 255
An entity has a 100% subsidiary in a foreign country. The subsidiary has net assets of FC100m. The opening rate was FC:LC 1.5 and the closing rate is FC:LC 2.0. The FCTR movement for the year (on opening net assets, ignoring the current year profit) is approximately:
Select an option first.
Correct answer: A — FC100m translated at the difference = LC50m gain
Explanation: A is correct: FCTR movement on opening net assets = FC100m × (2.0 − 1.5) = FC100m × 0.5 = LC50m gain. The foreign currency strengthened (it now takes 2 LC to buy 1 FC, meaning the LC weakened), so the subsidiary's net assets are worth more in LC — a translation gain. A is correct. B is wrong — the LC weakened, giving a translation gain not loss. C is wrong — LC100m is not supported. D is wrong — the FCTR changes every year.
Question 256
Under IFRS 3, the deferred tax on fair value uplifts in a business combination is recognised immediately at acquisition. In subsequent periods, the DTL is:
Select an option first.
Correct answer: B — Released as the related asset is depreciated or disposed of — reducing deferred tax expense in the consolidated income statement
Explanation: B is correct: the DTL on fair value uplift is unwound as the underlying temporary difference reverses — when the asset is depreciated, the carrying amount falls bringing it closer to the tax base, releasing the DTL to the income statement as a deferred tax credit. A is wrong — the DTL changes over time. C is wrong — DTLs are not transferred to goodwill. D is wrong — DTLs are not eliminated; they are real tax obligations.
Question 257
Under IFRS 10, power can be held through which of the following?
Select an option first.
Correct answer: B — Voting rights, potential voting rights (options or convertible instruments currently exercisable or convertible), contractual arrangements, or any combination that gives current ability to direct relevant activities
Explanation: B is correct: IFRS 10 defines power broadly — it can arise from voting rights, currently exercisable/convertible potential voting rights, contractual rights, or any combination. The key is the current ability to direct relevant activities. A is wrong — voting rights are one route. C is wrong — contractual arrangements are one route. D is wrong — board representation is one indicator.
Question 258
Under IFRS 3, if an entity acquires less than 100% of a business and there is no quoted price for the NCI shares, the entity must use:
Select an option first.
Correct answer: B — Valuation techniques to estimate the fair value of NCI — such as discounted cash flow models, market multiples or recent comparable transactions — consistent with IFRS 13
Explanation: B is correct: IFRS 3 requires NCI to be measured at fair value if the full goodwill method is chosen. Where no quoted price exists, IFRS 13 valuation techniques are used. A is wrong — the entity can choose either method; if choosing full goodwill, FV must be estimated. C is wrong — book value is not permitted under full goodwill. D is wrong — zero NCI would be incorrect.
Question 259
When translating a foreign operation under IAS 21, equity items (share capital, pre-acquisition reserves) are translated using:
Select an option first.
Correct answer: B — Historical exchange rates at the dates when those equity items arose (or when equity was contributed/earned)
Explanation: B is correct: IAS 21 requires equity components to be translated at the historical rate — share capital at the rate when issued, retained earnings at the rates of the underlying transactions. This historical translation of equity contrasts with the closing rate for assets/liabilities and generates the FCTR. A is wrong — closing rate is for assets/liabilities. C is wrong — average rate is for P&L. D is wrong — audit date is irrelevant.
Question 260
Under IFRS 11, whether a separate vehicle for a joint arrangement is classified as a JV or JO is primarily determined by:
Select an option first.
Correct answer: B — Whether the legal form, contractual terms and other facts indicate that the parties have rights to individual assets and obligations for individual liabilities (JO) versus rights to net assets (JV)
Explanation: B is correct: IFRS 11 requires a three-step analysis: (1) legal form, (2) contractual terms, (3) other facts and circumstances. The combination determines whether parties have rights to individual assets/liabilities (JO) or merely to net assets (JV). A is wrong — legal form alone is insufficient. C is wrong — number of parties is irrelevant. D is wrong — total assets are not the criterion.
Question 261
A subsidiary's goodwill at the end of Year 2 is $500,000 (allocated to a CGU). The CGU's carrying amount (including goodwill) is $2,000,000. Recoverable amount is $1,600,000. Impairment loss is $400,000 — how is it allocated?
Select an option first.
Correct answer: B — $400,000 first to goodwill ($400,000 ≤ $500,000 goodwill, so allocated entirely to goodwill)
Explanation: B is correct: IAS 36 requires impairment to be allocated first to goodwill. Since the loss ($400,000) is less than the goodwill balance ($500,000), the entire loss reduces goodwill to $100,000. No write-down of other assets is needed. A is wrong — goodwill is written down first, not pro rata. C is wrong — the full loss can be absorbed by goodwill. D is wrong — equal allocation ignores IAS 36's priority.
Question 262
Under IFRS 3, if a previously unconsolidated subsidiary is brought within the consolidated accounts for the first time (e.g. due to correcting an error), the comparative financial statements must be:
Select an option first.
Correct answer: B — Restated to reflect the subsidiary's results and position from the date it should have been consolidated — per IAS 8 prior period error correction
Explanation: B is correct: if a subsidiary was incorrectly excluded from consolidation, this is a prior period error under IAS 8 requiring full retrospective restatement — comparative periods are restated as if the subsidiary had always been consolidated. A is wrong — leaving unchanged misrepresents comparatives. C is wrong — prospective correction is insufficient for material errors. D is wrong — restatement is required.
Question 263
Under IFRS 10, when assessing whether an investor has power, potential voting rights (e.g. share options) are:
Select an option first.
Correct answer: B — Considered only when currently exercisable or convertible — not merely future rights
Explanation: B is correct: IFRS 10 considers potential voting rights only when they are currently exercisable or convertible (i.e. the holder can exercise them at will, not only on a future date or event). Management's intention to exercise is irrelevant — the key is whether they are currently exercisable. A is wrong — potential rights are considered when currently exercisable. C is wrong — they are not counted as full votes; they are assessed for their impact on power. D is wrong — intention is irrelevant.
Question 264
Under IFRS 3, the acquirer is identified as the entity that:
Select an option first.
Correct answer: B — Obtains control of the other entity — typically indicated by which entity has the larger relative size, which entity's former owners receive the largest portion of the combined entity, and which entity's management dominates
Explanation: B is correct: IFRS 3 requires identification of the acquirer — the entity that obtains control. Indicators include: the entity that transfers cash/assets, whose former owners hold the majority of combined entity's equity, whose management dominates. In reverse acquisitions, the accounting acquirer may not be the legal acquirer. A is wrong — share issuance is one indicator but not conclusive. C is wrong — market cap is one indicator. D is wrong — jurisdiction is irrelevant.
Question 265
In a consolidated statement of changes in equity, the NCI column shows:
Select an option first.
Correct answer: B — NCI's share of profit, NCI's share of OCI, dividends paid to NCI, and any changes from transactions with NCI (partial disposals or acquisitions)
Explanation: B is correct: the NCI column in the consolidated SOCIE tracks all movements in NCI equity: opening balance, NCI's share of profit for the year, NCI's share of OCI, dividends paid to NCI, and any equity transactions affecting NCI (e.g. changes in ownership without loss of control). A is wrong — dividends are one of several movements. C is wrong — all movements are shown. D is wrong — NCI is part of equity, not just P&L.
Question 266
Under IAS 21, if an intragroup monetary item (e.g. a loan) is denominated in a currency that is neither the parent's nor the subsidiary's functional currency:
Select an option first.
Correct answer: B — Each entity translates using its own functional currency rules; differences arise and typically go to P&L for each entity, unless the item is part of the net investment
Explanation: B is correct: each entity translates the monetary item using its own functional currency. If the item is an ordinary intercompany loan, differences go to P&L. If the item is in substance part of the net investment in the foreign operation (IAS 21 paragraph 15), differences go to OCI (FCTR). A is wrong — different functional currencies mean different translation rates for each entity. C is wrong — differences do arise. D is wrong — differences do not affect goodwill.
Question 267
Under IFRS 3, the 'measurement period adjustment' for a provisional fair value is accounted for as if:
Select an option first.
Correct answer: B — The adjustment had been recognised at the acquisition date — restating comparatives retrospectively
Explanation: B is correct: measurement period adjustments under IFRS 3 are treated as if they had been known at the acquisition date — comparatives are restated to reflect the final fair values, as if the acquisition had been completed with the final amounts. A is wrong — current date recognition misrepresents the acquisition. C is wrong — prospective application applies to estimate changes (IAS 8), not IFRS 3 measurement period adjustments. D is wrong — it is always retrospective, regardless of materiality.
Question 268
A subsidiary has its own subsidiaries (sub-subsidiaries). In the ultimate parent's consolidated financial statements:
Select an option first.
Correct answer: B — The sub-subsidiaries are also consolidated — the consolidation encompasses the entire controlled group
Explanation: B is correct: IFRS 10 requires consolidation of all entities the parent controls, directly or indirectly. If the parent controls A, and A controls B, then B (a sub-subsidiary) is also consolidated into the ultimate parent's group accounts. A is wrong — indirect subsidiaries are also consolidated. C is wrong — equity method applies to associates, not subsidiaries. D is wrong — consolidation is required.
Question 269
Under IAS 28, when an entity's investment in an associate is reduced (but significant influence is retained), the retained investment is:
Select an option first.
Correct answer: B — Continues to be accounted for under the equity method; a gain or loss on the partial disposal is recognised in P&L based on the proportion of interest sold
Explanation: B is correct: if significant influence is retained after a partial disposal, the remaining interest continues under the equity method. A gain/loss is recognised on the portion sold (proceeds minus carrying amount of interest sold). A is wrong — the retained interest continues as an associate. C is wrong — FVTPL reclassification only occurs on loss of significant influence. D is wrong — nil reduction only applies if losses have been absorbed.
Question 270
Under IFRS 10, the consolidated statement of financial position includes:
Select an option first.
Correct answer: B — 100% of the subsidiary's assets and liabilities, with goodwill and NCI, and elimination of intragroup items
Explanation: B is correct: consolidated SFP includes 100% of subsidiary assets and liabilities at fair value (with fair value adjustments), adds goodwill, shows NCI separately within equity, and eliminates intragroup balances. A is wrong — 100% of the subsidiary is included. C is wrong — proportionate consolidation is prohibited for subsidiaries. D is wrong — full consolidation requires line-by-line inclusion.
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