Financial Reporting MCQ Quiz - Objective Question with Answer for Financial Reporting - Download Free PDF

Last updated on Jul 15, 2025

Latest Financial Reporting MCQ Objective Questions

Financial Reporting Question 1:

Plutus Co's trial balance at 31 December 20X3 shows a debit balance of $800,000 on current tax and a credit balance of $8,400,000 on deferred tax. The directors have estimated the provision for income tax for the year at $4.5 million and the required deferred tax provision is $5.6 million, $1.2 million of which relates to a property revaluation.
What is the amount of income tax amount recognised in Plutus Co's statement of profit or loss for the year ended 31 December 20X3?

  1.  $1 million
  2.  $2.4 million
  3. $1.3 million
  4. $3.6 million

Answer (Detailed Solution Below)

Option 3 : $1.3 million

Financial Reporting Question 1 Detailed Solution

The correct option is option 3

Additional Information:

  $'000
Prior year under-provision  800
Current provision 4,500
Movement of deferred tax (8.4-5.6) (2,800)
Deferred tax on revaluation surplus (1,200)
Income tax expense 1,300

Financial Reporting Question 2:

How is a gain or loss arising on a biological asset recognised in accordance with IAS 41 Agriculture?

  1. Included in profit or loss for the year
  2. Adjusted in retained earnings
  3. Shown under 'other comprehensive income'
  4. Deferred and recognised over the life of the biological asset

Answer (Detailed Solution Below)

Option 1 : Included in profit or loss for the year

Financial Reporting Question 2 Detailed Solution

The correct option is option 1

Additional Information:

  • A gain or loss on a biological asset is included in profit or loss for the year.

Financial Reporting Question 3:

During the year Karen Co acquired an iron ore mine at a cost of $óm. In addition, when all the ore has been extracted (estimated ten years' time) the company will face estimated costs for landscaping the area affected by the mining that have a present value of $2m.
These costs would still have to be incurred even if no further ore was extracted.
How should this $2m future cost be recognised in the financial statements?

  1. Provision $2m and $2m capitalised as part of cost of mine
  2. Provision $2m and $2m charged to operating costs
  3. Accrual $200,000 per annum for next ten years
  4. Should not be recognised as no cost has yet arisen

Answer (Detailed Solution Below)

Option 1 : Provision $2m and $2m capitalised as part of cost of mine

Financial Reporting Question 3 Detailed Solution

The correct option is option 1

Additional Information:

  • $2m should be provided for and capitalised as part of the cost of the mine. It will then be depreciated over the useful life

Financial Reporting Question 4:

On 1 January 20X1, Straton Co purchased a debt instrument at its fair value of $500,000.
It had a principal amount of $550,000 and was due to mature in five years. The debt instrument carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%. It is held at amortised cost.
At what amount will the debt instrument be shown in the statement of financial position of Straton Co as at 31 December 20X2?

  1. $514,560
  2. $566,000
  3. $564,560
  4.  $520,800

Answer (Detailed Solution Below)

Option 1 : $514,560

Financial Reporting Question 4 Detailed Solution

The correct option is option 1

Additional Information:

  $
1 January 20X1 500,000
Interest 8%  40,000
Interest received (550,000 × 6%) (33,000)
31 December 20X1 507,000
Interest 8% 40,560
Interest received (33,000)
31 December 20X2 514,560

Financial Reporting Question 5:

PlutusTech Co. enters into a contract to provide a customer with a computer and a copy of "Designer" software. PlutusTech Co. is an authorised reseller of the software from a third-party developer. The total contract price is $3,500. The standalone selling price for the computer is $2,800. The developer provides the software directly to the customer, but PlutusTech holds a physical copy on behalf of the customer, as a bill-and-hold arrangement, until the customer requests it. PlutusTech earns a 15% commission on the software sale.

In accordance with IFRS 15, what is the total revenue PlutusTech Co. should recognise from this contract?

  1.  $3,500
  2. $3,055
  3.  $2,800
  4. $2,905

Answer (Detailed Solution Below)

Option 4 : $2,905

Financial Reporting Question 5 Detailed Solution

The correct option is option 4

Additional Information:

  • This contract contains two performance obligations: the sale of the computer and the sale of the software.
  • Allocate transaction price: The total contract price must be allocated to the two performance obligations based on their standalone selling prices. The standalone selling price of the software is not given, but PlutusTech earns a 15% commission, so it's acting as an agent. As an agent, PlutusTech's revenue is the commission earned, not the full price of the software.

Determine revenue from each obligation:

  • Computer: As a principal, PlutusTech should recognise revenue from the computer sale based on its standalone selling price, which is $2,800.
  • Software: As an agent, PlutusTech revenue from the software sale is the 15% commission on the portion of the transaction price allocated to the software. The total transaction price is $3,500. The remaining price after allocating to the computer is $3,500 - $2,800 = $700. This is the amount allocated to the software.
  • Software commission revenue: $700 * 15% = $105.

Recognise revenue:

  • The revenue for the computer should be recognised when control is transferred to the customer (assumed to be at the time of the sale, as the software is held as a bill-and-hold arrangement).
  • The revenue for the software should be recognised when the software is delivered directly to the customer by the developer, as this is when the performance obligation is satisfied.  PlutusTech is holding the software under a bill-and-hold arrangement, a contract under which an entity bills a customer for a product but the entity retains physical possession of the product until it is transferred to the customer at a point of time in the future.  The arrangement must meet specific criteria to recognize revenue before physical transfer. Assuming the criteria are met, the revenue is recognized at the point the developer transfers the asset.
  • Total revenue recognised: $2,800 (computer) + $105 (commission) = $2,905.

Explanation of Incorrect Options:

  • Option 1. $3,500: This is the total contract price. This would be incorrect because PlutusTech is an agent for the software sale, and should not recognise the full software price as its revenue.
  • Option 2. $3,055: This represents a miscalculation where the full software price ($700) is recognized as revenue, and the commission is not correctly applied.
  • Option 3. $2,800: This only recognises the revenue from the computer and completely omits the revenue from the software commission.

Top Financial Reporting MCQ Objective Questions

Financial Reporting Question 6:

The following information of Salvatore Co is available for the year ended 31 October 20X2:

Property  $
Cost as at 1 November 20X1  102,000   
Accumulated depreciation as at 1 November 20X1  (20,400)
  81,600

On 1 November 20X1, Salvatore Co revalued the property to 120,000. Salvatore Co's accounting policy is to charge depreciation on a straight−line basis over 50 years.On revaluation, there was no change to the overall useful life. It has also chosen to make the annual transfer of excess depreciation on revaluation in equity. What should be the balance on the revaluation surplus and the depreciation charge as shown in Salvatore Co's financial statements for the year ended 31 October 20X2?

  Depreciation Charge Revaluation Surplus
  $ $
A 3,000 37,440
B 3,000 38,400
C 2,400 39,360
D 2,400 18,000

  1. A
  2. B
  3. C
  4. D

Answer (Detailed Solution Below)

Option 1 : A

Financial Reporting Question 6 Detailed Solution

The correct option is option 1 

Additional Information:

  • When revaluing an asset, the revaluation surplus can be identified as the difference between the revalued amount and the carrying amount of the asset = $38,400 ($120,000 - $81,600).
  • As the revaluation takes place on 1 November 20X1, a full year's depreciation is calculated on the revalued amount. The new charge will take the revalued amount of $120,000 and depreciate the asset over its remaining useful life.
  • Original depreciation charge: $102,000/50 years = $2,040 per annum and as $20,400 is accumulated depreciation brought forward, then the asset must have already been owned for 10 years. Therefore, the remaining useful life is 40 years.   
  • The new depreciation charge should be calculated as: $120,000/40 years = $3,000 per annum. The excess depreciation transfer between accumulated depreciation and revaluation surplus is $960 ($3,000 - $2,040). The balance on revaluation surplus at 31 October 20X2 is $37,440 ($38,400 - $960).   

Financial Reporting Question 7:

The International Accounting Standards Board’s Conceptual Framework for Financial Reporting identifies qualitative characteristics of financial statements.

Which of the following characteristics are enhancing qualitative characteristics according to the IASB’s The Conceptual Framework for Financial Reporting?  

  1. Relevance 
  2. Reliability 
  3. Understandability 
  4. Comparability

  1. only 3 and 4 
  2. 1 and 3 
  3. 2 and 4 
  4. 1,3 and 4 

Answer (Detailed Solution Below)

Option 1 : only 3 and 4 

Financial Reporting Question 7 Detailed Solution

The correct option is option 1 

Additional information :

  • It is important to learn that the four enhancing characteristics are verifiability, comparability,  understandability, and timeliness.

Financial Reporting Question 8:

Mohit acquired a new office building on 1 October 20X4. Its initial carrying amount consisted of:  

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The estimated lives of the building structure and air conditioning system are 25 years and 10 years respectively. 

When the air conditioning system is due for replacement, it is estimated that the old system will be dismantled and sold for $500,000. 

Depreciation is time-apportioned where appropriate. 

At what amount will the office building be shown in Mohit’s statement of financial position as at 31 March 20X5? 

  1. $15,625,000 
  2. $15,250,000 
  3. $15,585,000 
  4. $15,600,000 

Answer (Detailed Solution Below)

Option 1 : $15,625,000 

Financial Reporting Question 8 Detailed Solution

The Correct Answer is Option 1, i.e. 1

Additional information:

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Financial Reporting Question 9:

Cisco Co owns a pharmaceutical business with a year-end of 30 September 20X4. Cisco Co commenced the development stage of a new drug on 1 January 20X4. $40,000 per month was incurred until the project was completed on 30 June 20X4, when the drug went into immediate production. The directors became confident of the project’s success on 1 March 20X4. The drug has an estimated life span of five years and time-apportionment is used by Cisco where applicable.  

What amount will Cisco charge to profit or loss for development costs, including any amortisation, for the year ended 30 September 20X4? 

  1. $12,000 
  2. $98,667 
  3. $48,000 
  4. $88,000

Answer (Detailed Solution Below)

Option 4 : $88,000

Financial Reporting Question 9 Detailed Solution

The correct option is option 4 

Additional information:

qImage67766f0f1a5643754abbaade

Financial Reporting Question 10:

Comprehension:

The directors of Veer Co are preparing the financial statements for the year ended 30 September 20X3. Veer Co is a publicly listed company.

 

(1)Most of Veer Co's competitors value their inventory using the average cost (AVCO) basis,whereas Veer Co uses the first in first out (FIFO) basis. The value of Veer Co's

   inventory at 30 September 20X3 on the FIFO basis, is $40 million, however on the AVCO basis it would be valued at $36 million. By adopting the same method (AVCO) as its competitors,the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $4 million. Veer Co's inventory at 30 September 20X2 was reported as $30 million, however on the AVCO basis it would have been reported as $26.8 million.

 

(2)Veer Co sold a machine to Poisson SA, a French company which it agreed to invoice in €.

   The sale was made on 1 October 20X6 for €250,000. €155,000 was received on 1 November 20X6 and the balance is due on 1 January 20X7.

    The exchange rate moved as follows:

    1 October 20X6 - €0.85 to $1

    1 November 20X6 - €0.84 to $1

    31 December 20X6 - €0.79 to $1

 

(3) After correctly accounting for the information in (1) and (2), Veer Co has earnings of $9,160,000. It had 2,000,000 ordinary $1 shares in issue during the year to 30 September

20X3. Veer Co has an additional 1,000,000 shares under option at the year end. The fair value of the shares at that date is $12.00 per share and the exercise price for the options is

$10.00 each.

 

The auditors of Veer Co have discovered a fundamental error in the prior year financial statements. The directors of Veer Co have agreed to correct the prior period error.
Which of the following are the disclosures which the directors should present in the financial statements?
(1) The nature of the error
(2) The amount of the correction for each item of the financial statements affected by the error and correction

  1. Statement (1) only
  2. Statement (2) only
  3. Neither statement (1) or (2)
  4. Both statements (1) and (2)

Answer (Detailed Solution Below)

Option 4 : Both statements (1) and (2)

Financial Reporting Question 10 Detailed Solution

The correct option is option 4

Additional Information:

IAS 8 states that the nature and the amount of the error should be disclosed, detailing each of the lines affected by the adjustment and the error.

Financial Reporting Question 11:

Ryan Co is engaged in a number of research and development projects during the year ended 31 December 20X5:

Project 1 - A project to investigate the properties of a chemical compound. Costs incurred on this project during the year ended 31 December 20X5 were $34,000.

Project 2 - A project to develop a new process which will save production time in the manufacture of widgets. This project commenced on 1 January 20X5 and met the capitalisation criteria on 31 August 20X5. The cost incurred during 20X5 was $78,870 to 31 August and $27,800 from 1 September.

Project 3- A development project which was completed on 30 June 20X5. Development costs incurred up to 31 December 20X4 were $290,000, with a further $19,800 incurred between January and June 20X5. Production and sales of the new product commenced on 1 September and are expected to last 36 months.

What amount should be expensed to the statement of profit or loss and other comprehensive income of Ryan Co in respect of these projects in the year ended 31 December 20X5?

  1. $112,870
  2. $147,292
  3. $148,000
  4. $112,840

Answer (Detailed Solution Below)

Option 2 : $147,292

Financial Reporting Question 11 Detailed Solution

The correct option is option 2

Additional Information:

  $
Project 1  34,000
Project 2 78,870
Project 3 ($290,000 + $19,800) × 4/36 34,422
  147,292

 

Financial Reporting Question 12:

On 1 January 20X8, Fredo Co. owned a building which cost $480,000 with a carrying amount of $384,000. On that date the building was valued at 600,000 and Fredo Co wishes to include that valuation in its financial statements.Fredo Co's accounting policy is to depreciate buildings at the rate of 2%. What is the amount of the annual transfer of excess depreciation that Fredo Co will make as a result of the revaluation?

  1. $6,000
  2. $5,400
  3. $9,600
  4. $10,000

Answer (Detailed Solution Below)

Option 2 : $5,400

Financial Reporting Question 12 Detailed Solution

The correct option is option 2

Additional Information:

  • Annual depreciation charge before revaluation: 2% x $480,000 = $9,600
  • Years since purchase: $480,000 - $384,000 / $9,600 = 10 years
  • Total estimated useful life is 50 years, with a remaining estimated useful life of 40 years. Thus depreciation following revaluation: $600,000 / 40 = $15,000.
  • Amount of excess depreciation = $15,000 - $9,600 = $5,400

Financial Reporting Question 13:

On 1 January 20X3 Himani acquires a new machine with an estimated useful life of 6 years under the following agreement: 

An initial payment of $13,760 will be payable immediately 

5 further annual payments of $20,000 will be due, commencing 1 January 20X3 

The interest rate implicit in the lease is 8% 

The present value of the lease payments, excluding the initial payment, is $86,240 

What will be recorded in Himani’s financial statements at 31 December 20X4 in respect of the lease liability? 

  1. FInance cost-$4123, Non current liability-$35,662 , Current Liability-$20,000
  2. FInance cost-$5299, Non current liability-$51,539 , Current Liability-$20,000
  3. FInance cost-$5312, Non current liability-$51,712 , Current Liability-$20,000
  4. FInance cost-$5,851, Non current liability-$43,709 , Current Liability-$15,281

Answer (Detailed Solution Below)

Option 1 : FInance cost-$4123, Non current liability-$35,662 , Current Liability-$20,000

Financial Reporting Question 13 Detailed Solution

The correct option is option 1

Additional Information:

qImage6784ea854bcdefd520063f80

  • The non‐current liability at 20X4 is the figure to the right of the payment in 20X5, $35,662.  The current liability is the total liability of $55,662 less the non‐current liability of $35,662,  which is $20,000. 
  • The finance cost is the figure in the interest column for 20X4, $4,123. 
  • If you chose 2 you have done the entries for year one. If you chose 3 or 4, you have recorded the payments in arrears, not in advance.

Financial Reporting Question 14:

On 31 March 20X5, Blade’s closing inventory was counted and valued at its cost of $ 2 million. 

This included some items of inventory which had cost $ 420,000 and had been damaged ina flood on 15 March 20X5. These are not expected to achieve their normal selling price which is calculated to achieve a gross profit margin of 30%. 

The sale of these goods will be handled by an agent who sells them at 75% of the normal selling price and charges Blade a commission of 10%.  

At what value will the closing inventory of Blade be reported in its statement of financial position as at 31 March 20X5 ?  

$ ______

  1. 1585000
  2. 2000000
  3. 1580000
  4. 1600000

Answer (Detailed Solution Below)

Option 1 : 1585000

Financial Reporting Question 14 Detailed Solution

Total Inventory Value = 20,00,000

Value of Inventory excluding damaged goods = 15,80,000 [ 2 mn - 4,20,000 ]

Valuation of damaged goods

Inventory is valued at lower of cost or NRV

Let us assume that Sales Price is 100, gross profit margin is 30. So, cost of inventory will be 70 [ 100 - 30 ]

That means, Cost is 70% of Selling Price.

In our case, cost of these goods is 420000. So, normal selling price will be 420000 / 70% = 600000

These will be sold at 75% of normal selling price. That means, estimated selling price = 600000 * 75% = 450000

NRV = Estimated Selling price 450000 ( - ) 45000 Estimated cost to sell : 10% commission = 405000

So, Cost is 420000; NRV is 405000. NRV is lower.

So, Total Inventory value = 1580000 ( Value of goods excluding damaged ) + 405000 Value of damaged = 1585000

Financial Reporting Question 15:

Jay Co manufactures cycling equipment. It has a number of specialised frames in inventory which cost $20,000 to manufacture. These frames were manufactured following an order from a customer at an agreed selling price of $30,000. Due to recent technological advances, the current cost of manufacturing such frames is estimated to be $15,000. Jay Co also has inventory of 3,000 pedals with a cost of $20 each. These have become damaged. If Jay Co spends $5,000 to repair all of them, these could be sold for $21 each. 

Which TWO of the following statements regarding Jay Co's inventory are true? 

A. The frames should be valued at $15,000 

B. The frames should be valued at $20,000  

C. The frames should be valued at $30,000 

D. The pedals should be valued at $60,000 

E. The pedals should be valued at $58,000 

F. The pedals should be valued at $65,000 

  1. A and D
  2. B and E
  3. D and F
  4. B and D

Answer (Detailed Solution Below)

Option 2 : B and E

Financial Reporting Question 15 Detailed Solution

Inventory should be valued at lower of cost or NRV.

Frames

Cost of manufacturing : 20000

NRV = Estimated Selling Price ( - ) Estimated cost to sell = 30000 ( - ) ZERO = 30000

15000 is replacement cost, not relevant in this case.

Between Cost ( 20000 ) and NRV ( 30000 ); Cost is lower. So, inventory of frames is valued at 20000.

Pedals

Cost of pedals = 3000 * 20 = 60000

NRV = Estimated Selling Price ( - ) Estimated cost to sell = 3000 * 21 ( - ) 5000 = 58000

Between Cost ( 60000 ) and NRV ( 58000), NRV is lower. So, inventory is valued at 58000

So, answer is B and E

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