Financial Reporting MCQ Quiz - Objective Question with Answer for Financial Reporting - Download Free PDF
Last updated on Jul 1, 2025
Latest Financial Reporting MCQ Objective Questions
Financial Reporting Question 1:
During the year, Erik made a 2 for 6 rights issue at $3.20. when the market price was $4.40. Last year’s EPS was $1.62. There were no other issues of shares during the year. What is the restated earnings per share figure for comparative purposes? _______________ .
Answer (Detailed Solution Below)
Financial Reporting Question 1 Detailed Solution
The correct option is option 2
Additional Information:
The prior year earnings per share figure must be restated by the inverse of the rights fraction that relates to the current year earnings per share calculation.
The current year rights fraction is calculated below.
Step 1 – Theoretical ex‐rights price (TERP)
| 6 shares @ $4.40 = | $26.40 |
| 2 share @ $3.20 = | $6.40 |
| 8 shares | 32.80 |
TERP = $32.80/8 = $4.10
Step 2 – Rights fraction
- 4.40
- 4.10
Therefore, the restated earnings per share figure is $1.62 × 4.10/4.40 = $1.50.
Financial Reporting Question 2:
Satya issued $40 million 5% loan notes on 1 January 20X9, incurring issue costs of $1,200,000. The loan notes are redeemable at a premium, giving them an effective interest rate of 7%.
What expense should be recorded in relation to the loan notes for the year ended 31 December 20X9?
$______________ ,000
Answer (Detailed Solution Below)
Financial Reporting Question 2 Detailed Solution
The correct option is option 3
Additonal Information:
The initial liability should be recorded at the net proceeds of $38.8 million. The finance cost should then be accounted for using the effective rate of interest of 7%. Therefore the finance cost for the year is $2,716,000 ($38.8 million × 7%).
Financial Reporting Question 3:
Crown Co operates a production line which is considered a cash-generating unit (CGU). Due to a significant decline in demand for its products, an impairment review was conducted on December 31, 20X4. The assets of the CGU had the following carrying amounts immediately prior to the impairment:
The recoverable amount of the CGU was determined to be $600,000. The specialized plant has a fair value less costs to sell of $380,000, and its value in use is estimated at $390,000. All other net assets are considered to be at their net realisable value.
Calculate the total impairment loss and the carrying amount of the Specialized Plant after allocating the impairment loss.
Carrying Amount of Specialized Plant after Impairment: $
Answer (Detailed Solution Below)
Financial Reporting Question 3 Detailed Solution
The correct option is option 2
Additional Information:
To calculate the total impairment loss and the carrying amount of the Specialized Plant after allocating the impairment loss:
1. Calculate the total carrying amount of the CGU:
-
Goodwill: $150,000
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Specialized Plant: $400,000
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Patents (finite life): $100,000
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Inventory: $50,000
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Trade Receivables: $30,000
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Total Carrying Amount = $150,000 + $400,000 + $100,000 + $50,000 + $30,000 = $730,000
2. Determine the recoverable amount of the CGU: The recoverable amount of the CGU is given as $600,000
3. Calculate the total impairment loss: An impairment exists if the carrying amount exceeds its recoverable amount.
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Total Impairment Loss = Total Carrying Amount - Recoverable Amount
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Total Impairment Loss = $730,000 - $600,000 = $130,000
4. Allocate the impairment loss: IAS 36 requires that an impairment loss attributable to a CGU should be allocated in the following order: * First, to goodwill. * Then, to the other assets (including other intangible assets) in the CGU on a pro-rata basis based on the carrying amount of each asset. * No individual asset should be written down below its recoverable amount. Current assets (like inventory and receivables) are unlikely to be impaired as part of a CGU allocation if they are already carried at their recoverable amounts, as stated in the question.
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Step 1: Allocate to Goodwill
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Goodwill carrying amount: $150,000
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Impairment loss allocated to goodwill: $130,000 (fully impair goodwill up to the total impairment loss)
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Remaining impairment loss to allocate: $130,000 - $130,000 = $0
-
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Since the total impairment loss ($130,000) is less than or equal to the goodwill carrying amount ($150,000), the entire impairment loss is absorbed by goodwill. There is no remaining impairment loss to allocate to other assets.
Total Impairment Loss: $130,000 Carrying Amount of Specialized Plant after Impairment: $400,000 (no impairment allocated to plant as goodwill absorbed the entire loss).
Financial Reporting Question 4:
On 1 January 20X4, Potts entered into a sale and leaseback of its property. When it was sold, the asset had a carrying amount of $12 million and a remaining life of 20 years. Potts sold the asset for $14 million and leased it back on a 10 year lease, paying $1 million on 31 December each year. The lease carried an implicit interest rate of 7%. What is the total expense that should be recorded in the statement of profit or loss for the year ended 31 December 20X4? $________________ ,000
Answer (Detailed Solution Below)
Financial Reporting Question 4 Detailed Solution
The correct option is option 3
Addiitonal Information:
As Potts has retained control of the asset, the asset cannot be treated as sold, and will be retained at its carrying amount, depreciated over the remaining life of 10 years. The sale proceeds will effectively be treated as a loan of $7 million, on which interest will be charged at 7%. Therefore the following items will be included in the statement of profit or loss, all figures in $000:
- Depreciation: $12,000/20 years = $600
- Finance cost: $14,000 × 7% = $980
- Total expense = $600 + $980 = $1,980
Financial Reporting Question 5:
Under what specific circumstances is a parent company exempt from preparing consolidated financial statements, in accordance with IFRS 10 Consolidated Financial Statements?
Answer (Detailed Solution Below)
Financial Reporting Question 5 Detailed Solution
The correct option is option 2
Additional Information:
IFRS 10 provides a specific exemption from preparing consolidated financial statements if the parent itself is a wholly-owned subsidiary or a partially-owned subsidiary and its other owners (including those not otherwise entitled to vote) have been informed about, and do not object to, the parent not preparing consolidated financial statements. Additionally, other conditions such as non-public trading of instruments and the ultimate parent preparing IFRS-compliant consolidated statements must be met.
Explanation of Wrong Options:
Option 1. Incorrect: If a parent company's debt or equity instruments are traded on a public market, it is not exempt from preparing consolidated financial statements. This condition for public trading would prevent exemption.
Option 3. Incorrect: IFRS 10 specifically states that the activities of a subsidiary being significantly different is not a permitted reason for excluding a subsidiary from consolidation. The standard emphasizes control as the sole basis for consolidation.
Option 4. Incorrect: If a parent company has lost control over a subsidiary (e.g., due to severe long-term restrictions), the entity is no longer a subsidiary and therefore should not be consolidated. This is a reason not to consolidate, not an exemption from preparing consolidated financial statements for a controlling parent. The exemption criteria apply when the parent does control, but meets specific relief conditions.
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 |
Answer (Detailed Solution Below)
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?
- Relevance
- Reliability
- Understandability
- Comparability
Answer (Detailed Solution Below)
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:
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?
Answer (Detailed Solution Below)
Financial Reporting Question 8 Detailed Solution
The Correct Answer is Option 1, i.e. 1
Additional information:
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?
Answer (Detailed Solution Below)
Financial Reporting Question 9 Detailed Solution
The correct option is option 4
Additional information:
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
Answer (Detailed Solution Below)
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?
Answer (Detailed Solution Below)
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?
Answer (Detailed Solution Below)
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?
Answer (Detailed Solution Below)
Financial Reporting Question 13 Detailed Solution
The correct option is option 1
Additional Information:
- 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 ?
$ ______
Answer (Detailed Solution Below)
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
Answer (Detailed Solution Below)
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