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LKAS 1 LKAS 16 LKAS37 LKAS 36 1. Which of the following best describes GAAP? A Laws relating to accounting requirements B Rules and principles that govern accounting C Accounting standards and interpretations D Principles that underlie accounting standards 2. Which of the following is not a source of legislation relevant to accountants in Sri Lanka? A Finance Act No 38 of 1971 B Companies Act No 07 of 2007 C Sri Lanka Standards and Interpretations Act No 10 of 2001 D Inland Revenue Act No 10 of 2002 3. Which of the following are fundamental qualitative characteristics of financial information? 1 Going concern 2 Faithful representation 3 Materiality 4 Relevance A 1 and 4 B 1 and 3 C 2 and 3 D 2 and 4 4. Which of the following statements is correct? A An asset is recognised if there is a probable inflow of economic benefits attached to it. B An asset is derecognised only when an entity loses control of it. C A liability may be measured at value in use. D Items of expense are recognised in profit or loss unless an SLFRS considers recognition in OCI to be more relevant.

LKAS 1 LKAS 16 LKAS37 LKAS 36 5. Which of the following is not covered by a Universal Standard on sustainability reporting? A Management approach B Report content and quality C General disclosures D Economic performance 6. Integrated reporting is sometimes referred to as 'triple bottom line reporting'. What does this refer to? A Profit, power and people B Power, people and planet C Profit, planet and power D Profit, planet and people 7. Which of the following are all guiding principles of an integrated report according to the IR Framework? A Materiality, conciseness and fair presentation B Reliability, completeness and verifiability C Consistency, comparability and materiality D Comparability, reliability and understandability 8. Which of the following is/are a current asset in the financial statements of a shipbuilding company? 1 A ship under construction, which will take a further estimated 600 days to complete 2 An amount lent to a supplier with a repayment date in two years' time A 1 only B 2 only C 1 and 2 D Neither of them 9. Which of the following is/are a change in accounting policy? 1 A move from the LKAS 16 cost model to the LKAS 16 revaluation model 2 Reclassifying certain expenses as administrative expenses rather than cost of sales A 1 only B 2 only C 1 and 2 D Neither of them

LKAS 1 LKAS 16 LKAS37 LKAS 36 10. A company buys a property on 1 January 20X3 at a cost of Rs. 45m and starts depreciating it over a 50-year useful life. Property prices remain constant throughout 20X3; however, towards the end of 20X4 there is drop in the market value of commercial properties and the market value of the property falls to Rs. 39m at 31 December 20X4. The company holds all properties under the revaluation model of LKAS 16. What is the charge to profit or loss in the year ended 31 December 20X4? A Rs. 0.9m B Rs. 4.2m C Rs. 5.1m D Rs. 6m The answer is C. The charge to profit or loss in 20X4 includes: (1) Depreciation for the year of Rs. 45m/50 years = Rs. 900,000. – 39m = 4.2m. Therefore, a total of Rs. 5.1m. 11. Which of the following may not be capitalised as part of the cost of Abekoon Development PLC's new head office? A The pension costs of Abekoon Development PLC's employees who were involved in building the head office B The cost of identifying an appropriate site for the head office C Architects' fees D The costs of removing the old property on the chosen site The answer is B. The costs of site selection are not eligible for capitalisation; however the costs of site preparation are. 12. Perera Properties PLC acquires a machine on 1 January 20X5 at a cost of Rs. 380,000. The machine has a residual life of Rs. 60,000 and a 10-year useful life. At 31 December 20X8, it is decided that the machine has a remaining useful life of three years and no residual value. The machine was sold on 31 December 20X9 for Rs. 150,000. What was the profit or loss on disposal? A Rs. 18,000 loss B Rs. 2,000 loss C Rs. 18,000 profit D Rs. 2,000 profit

LKAS 1 LKAS 16 LKAS37 LKAS 36 Depreciation per annum is initially Rs. 32,000 ((Rs. 380,000 – 60,000)/10 years). Therefore depreciation for the 4 years to 31 December 20X8 is Rs. 128,000 and the carrying amount at 31 December 20X8 is Rs. 252,000. The carrying amount of the machine at 31 December 20X9 is Rs. 168,000. A loss of Rs. 18,000 on disposal therefore arises. 13. A company acquired a property on 1 January 20X2 at a cost of Rs. 10m and began depreciating it over 50 years immediately. On 31 December 20X7, the company adopted a policy of revaluation and the property was revalued to Rs. 9.9m. It continued to be depreciated over the remainder of the original useful life. On 31 December 20X8, the property was tested for impairment and found to have a recoverable amount of 9.4m. What amount is recognised in profit or loss in respect of the impairment in the year ended 31 December 20X8? A Nil B Rs. 275,000 C Rs. 302,000 D Rs. 500,000 The answer is A. Rs'000 Cost 10,000 Carrying amount 31 Dec 20X7 8,800 Revaluation surplus 1,100 Carrying amount post revaluation 9,900 Depreciation 20X8 (9.9/44) (225) Carrying amount 31 Dec 20X8 9,675 Impairment loss (275) Recoverable amount 9,400 The impairment loss is recognised as a downwards revaluation as a reduction of the previously recognised revaluation surplus. 14. Which of the following statements about value in use is/are true? 1 Value in use is determined by estimating future cash inflows from the use of the asset for the remainder of its useful life. 2 Value in use is determined by discounting future cash flows using a pre-tax rate. A 1 only B 2 only C Both 1 and 2 D Neither 1 nor 2

LKAS 1 LKAS 16 LKAS37 LKAS 36 15. A customer has brought a legal case against Dias Perera PLC in respect of faulty goods. At 31 December 20X4 the case has not concluded, and lawyers advise the company that there is a 60% chance of losing the case, in which case payment of Rs. 250,000 is the most likely outcome. The case was settled between 31 December and the date on which the financial statements were approved for issue, and Dias Perera was required to pay Rs. 210,000 to the customer. What amount, if any, is reported in the published financial statements as a provision at 31 December 20X4? A Nil B Rs. 150,000 C Rs. 210,000 D Rs. 250,000 The answer is C. A provision should be made, as there is a present legal obligation as a result of a past event; a transfer of economic resources is probable and can be reliably measured. The amount initially recognised at 31 December would be the best estimate of Rs. 250,000; however, the subsequent settlement of the case is an adjusting event and so in the published financial statements the provision will be Rs. 210,000. 16. Under new legislation, a company is required to fit carbon monoxide detectors in all work areas by 30 October 20X5. To do so would cost Rs. 300,000. At the year end, 31 December 20X5, the company has not fitted the detectors. There is a fine for non-compliance of Rs. 150,000. What provision, if any, is required at 31 December 20X5? A No provision B A provision for Rs. 150,000 C A provision for Rs. 300,000 D A provision for Rs. 450,000 The answer is B. There is no obligation for the costs of fitting the detectors, since the detectors have not been fitted. Therefore, no provision is required in respect of the Rs. 300,000 cost of fitting the detectors. There is, however, an obligation to pay a Rs. 150,000 fine, since the obligating event has occurred (non-compliance of the factory). 17. During the period between the reporting date and the date on which the financial statements of Kalugala Tea (Pvt) Ltd are approved for issue, the following events occur. 1 A fire at one of the 10 plantations 2 A management decision to pay a one-off bonus of Rs. 60,000 to key members of staff in respect of performance in the past year PROGRESS TEST Which of these is an adjusting event?

LKAS 1 LKAS 16 LKAS37 LKAS 36

A Neither of them B 1 only C 2 only D Both of them The answer is A. The fire in itself is a non-adjusting event. If it affects going concern, it may become an adjusting event; however, since there are a further nine plantations, this is probably not the case. The decision to pay a bonus is also a non-adjusting event, as the bonus is not contractual and the company has no obligation to pay it. 18. Which of the following is NOT an indicator of impairment? A Advances in the technological environment in which an asset is employed have an adverse impact on its future use. B An increase in interest rates which increases the discount rate an entity uses. C The carrying amount of an entity’s net assets is higher than the entity’s number of shares in issue multiplied by its share price. D The estimated net realisable value of inventory has been reduced due to fire damage although this value is greater than its carrying amount. 19. Which of the following gives the best description of the objectives of financial statements as set out by the International Accounting Standards Board’s (The Board’s) Conceptual Framework for Financial Reporting? A To fairly present the financial position and performance of an enterprise. B To fairly present the financial position, performance and changes in financial position of an enterprise. C To provide information about the financial position and performance of an enterprise that is useful to a wide range of users in making economic decisions. D To provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions 20. The International Accounting Standards Board’s Conceptual Framework for Financial Reporting defines a liability as: A an amount owed to another entity B a present obligation arising as a result of past events, the settlement of which is expected to result in an outflow of economic benefits C expenditure that has been incurred but not yet charged to the statement of profit or loss D an obligation that may arise in the future

LKAS 1 LKAS 16 LKAS37 LKAS 36 21. Which of the following explains the value that relevant information contains? A Instructive value B Fair value C Confirmatory value D Approximate value 22. Which of the following is an example of following the principle of faithful representation? A Showing lease payments as a rental expense B Being prudent by recording the entire amount of a convertible loan as a liability C Creating a provision for staff relocation costs as part of a planned restructuring D Recording a sale and repurchase transaction with a bank as a loan rather than a sale 23. The International Accounting Standards Board’s Conceptual Framework for Financial Reporting defines an asset as: A A resource controlled by an entity which is capable of generating independent cash flows. B A resource controlled by an entity as a result of past events, from which future economic benefits are expected. C A resource owned by an entity as a result of past events, from which future economic benefits are expected. D A resource capable of generating income for the entity. 24. Which of the following criteria need to be satisfied in order for an element to be recognised within the financial statements? (i) It meets the definition of an element of the financial statements. (ii) It is probable that future economic benefits will flow to or from the enterprise. (iii) It is certain that future economic benefits will flow to or from the enterprise. (iv) The item has a cost or value. (v) The item has a cost or value that can be reliably measured. A (i), (ii) and (v) B (i), (iii) and (v) C (i), (ii) and (iv) D (i), (iii) and (iv) 25. Which description defines information that is relevant to users of financial information? A Information that is free from error, bias and is a faithful representation of events B Information that has been prudently prepared C Information that is comparable from one period to the next D Information that influences the decisions of users

LKAS 1 LKAS 16 LKAS37 LKAS 36 26. Which of the following is NOT a purpose of the International Accounting Standards Board’s (the Board’s) Conceptual Framework? A To assist the Board in the preparation and review of IFRS Standards. B To assist auditors in forming an opinion on whether financial statements comply with IFRS Standards. C To assist in determining the treatment of items not covered by an existing IFRS Standards. D To be authoritative where a specific IFRS Standard conflicts with the Conceptual Framework. 27. Financial statements represent transactions in words and numbers. To be useful, financial information must represent faithfully these transactions in terms of how they are reported. Which of the following accounting treatments would be an example of faithful representation? A Capitalising development costs as an intangible asset B Including a convertible loan note in equity on the basis that the holders are likely to choose the equity option on conversion C Continuing to recognise factored trade receivables sold with recourse D Treating redeemable preference shares as equity 28. Faithful representation is a fundamental characteristic of useful information within the International Accounting Standards Board’s Conceptual Framework for financial reporting. Which of the following treatments applies the principle of faithful representation? A Reporting a transaction based on its legal status rather than its economic substance. B Excluding a subsidiary from consolidation because its activities are not compatible with those of the rest of the group. C Recording the whole of the net proceeds from the issue of a loan note which is potentially convertible to equity shares as a liability. D Allocating part of the sales proceeds of a motor vehicle to interest received even though it was sold with interest-free finance. 29. The International Accounting Standards Board’s Conceptual Framework for Financial Reporting defines recognition as the process of incorporating within the financial statements an item which meets the definition of an element and satisfies certain criteria. Which of the following elements should be recognised in the financial statements of an entity in the manner described? A As a non-current liability: a provision for possible hurricane damage to property for an entity located in an area which experiences a high incidence of hurricanes. B In equity: irredeemable preference shares. C As a trade receivable: an amount of $10,000 due from a customer which has been sold (factored) to a finance company with no recourse to the seller. D In revenue: the whole of the proceeds from the sale of an item of manufactured

LKAS 1 LKAS 16 LKAS37 LKAS 36 plant which has to be maintained by the seller for three years as part of the sale agreement. 30. Tynan’s year end is 30 September 20X4 and a number of potential liabilities have been identified. Which TWO of the following should Tynan recognise as liabilities as at 30 September 20X4? A The signing of a non-cancellable contract in September 20X4 to supply goods in the following year on which, due to a pricing error, a loss will be made. B The cost of a reorganisation which was approved by the board in August 20X4 but has not yet been implemented, communicated to interested parties or announced publicly. C An amount of deferred tax relating to the gain on the revaluation of a property during the current year. Tynan has no intention of selling the property in the foreseeable future. D The balance on the warranty provision which relates to products for which there are no outstanding claims and whose warranties had expired by 30 September 20X4. 31. Which of the following items should be recognised as an asset in the statement of financial position of an entity? A A skilled and efficient workforce which has been very expensive to train. Some of these staff are still employed by the entity. B A highly lucrative contract signed during the year which is due to commence shortly after the year-end. C A government grant relating to the purchase of an item of plant several years ago which has a remaining life of four years. D A receivable from a customer which has been sold (factored) to a finance company. The finance company has full recourse to the entity for any losses. 32. Comparability is identified as an enhancing qualitative characteristic in the International Accounting Standards Board’s Conceptual Framework for Financial Reporting. Which of the following does NOT improve comparability? A Restating the financial statements of previous years when there has been a change of accounting policy. B Prohibiting changes of accounting policy unless required by an IFRS Standard or to give more relevant and reliable information. C Disclosing discontinued operations separately in financial statements. D Applying an entity’s current accounting policy to a transaction which an entity has not engaged in before.

LKAS 1 LKAS 16 LKAS37 LKAS 36 33. Which of the following concepts aims to ensure that excess dividends are not paid in times of changing prices? A Going concern B Amortised cost C Faithful representation D Capital maintenance 34. Which TWO of the following events which occur after the reporting date of an entity but before the financial statements are authorised for issue are classified as ADJUSTING events in accordance with IAS 10 Events after the Reporting Period? A A change in tax rate announced after the reporting date, but affecting the current tax liability B The discovery of a fraud which had occurred during the year C The determination of the sale proceeds of an item of plant sold before the year end D The destruction of a factory by fire 35. In a review of its provisions for the year ended 31 March 20X5, Cumla’s assistant accountant has suggested the following accounting treatments: (i) Based on past experience, a $200,000 provision for unforeseen liabilities arising after the year end. (ii) The partial reversal (as a credit to the statement of profit or loss) of the accumulated depreciation provision on an item of plant because the estimate of its remaining useful life has been increased by three years. (iii) Providing $1 million for deferred tax at 25% relating to a $4 million revaluation of property during March 20X5 even though Cumla has no intention of selling the property in the near future. Which of the above suggested treatments of provisions is/are permitted by IFRS Standards? A (i) only B (i) and (ii) C (ii) and (iii) D (iii) only 36. Which TWO of the following statements about provisions are true? A Future operating losses cannot be provided for B Changes in provisions should be applied retrospectively, adjusting the prior year financial statements C Provisions should be accounted for prudently, reflecting the maximum that could possibly be paid out D Provisions should be discounted to present value if the effect of the time value of money is material

LKAS 1 LKAS 16 LKAS37 LKAS 36

37. How does the Conceptual Framework define an asset? A A resource owned by an entity as a result of past events and from which future economic benefits are expected to flow to the entity B A resource over which an entity has legal rights as a result of past events and from which economic benefits are expected to flow to the entity C A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity D A resource to which an entity has a future commitment as a result of past events and from which future economic benefits are expected to flow from the entity 38. Which one of the following would be classified as a liability? A Dexter's business manufactures a product under licence. In 12 months' time the licence expires and Dexter will have to pay $50,000 for it to be renewed. B Reckless purchased an investment 9 months ago for $120,000. The market for these investments has now fallen and Reckless's investment is valued at $90,000. C Carter has estimated the tax charge on its profits for the year just ended as $165,000. D Expansion is planning to invest in new machinery and has been quoted a price of $570,000. 39. Which one of the following would correc...