FAC2601 EXAM with Questions and
Answers/Plus a Rationale Updated 2026
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Table of Contents
1. Conceptual Framework for Financial Reporting
2. Property, Plant and Equipment (IAS 16)
3. Intangible Assets (IAS 38)
4. Impairment of Assets (IAS 36)
5. Revenue from Contracts with Customers (IFRS 15)
6. Provisions, Contingent Liabilities and Contingent Assets (IAS 37)
7. Presentation of Financial Statements (IAS 1)
8. Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)
1. A company acquires a specialized machine for R500,000. It incurs R20,000 for installation,
R10,000 for safety testing, and R5,000 for training staff to operate it. According to IAS 16, what
is the initial cost of the asset?
A. R500,000
B. R530,000
C. R535,000
D. R520,000
, CORRECT ANSWER : B
Rationale: The initial cost includes all directly attributable costs to bring the asset to the
location and condition necessary for it to be capable of operating. Installation and testing costs
are capitalized, whereas staff training costs are expensed as they are not necessary to prepare
the asset for its intended use.
2. An entity identifies that an item of property, plant, and equipment has been impaired. The
carrying amount is R800,000, the fair value less costs to sell is R700,000, and the value in use is
R750,000. What is the impairment loss to be recognized?
A. R100,000
B. R50,000
C. R50,000
D. R0
CORRECT ANSWER : C
Rationale: The recoverable amount is the higher of fair value less costs to sell (R700,000) and
value in use (R750,000), which is R750,000. The impairment loss is the difference between the
carrying amount (R800,000) and the recoverable amount (R750,000), resulting in a loss of
R50,000.
3. Which of the following criteria must be met for an intangible asset to be recognized under IAS
38?
A. It is held for sale in the ordinary course of business.
B. It is a physical asset that provides future economic benefits.
C. It is identifiable, controlled by the entity, and will provide future economic benefits.
D. It has a finite useful life and is amortized over 20 years.
CORRECT ANSWER : C
Rationale: IAS 38 requires an intangible asset to be identifiable, controlled, and expected to
provide future economic benefits. A is incorrect as it describes inventory; B is incorrect as
intangible assets lack physical substance; D is incorrect as some intangible assets have
indefinite lives.
,4. A company enters a contract to provide a service over 12 months for R120,000. At the end of
month 3, the company has completed 25% of the performance obligation. How much revenue
should be recognized under IFRS 15?
A. R120,000
B. R10,000
C. R30,000
D. R90,000
CORRECT ANSWER : C
Rationale: Under IFRS 15, revenue is recognized as the performance obligation is satisfied.
Since 25% of the service is completed, 25% of the transaction price (R120,000 × 0.25 =
R30,000) is recognized as revenue.
5. When a change in accounting estimate occurs, how must the entity account for it?
A. Retrospectively, by restating prior period financial statements.
B. Prospectively, by including it in the profit or loss of the period of change and future
periods.
C. By adjusting the opening balance of retained earnings.
D. By disclosure in the notes without adjusting any financial figures.
CORRECT ANSWER : B
Rationale: IAS 8 requires changes in accounting estimates to be handled prospectively.
Retrospective application is reserved for changes in accounting policy or correction of errors.
6. A lawsuit is pending against a company. It is probable that an outflow of resources will be
required to settle the obligation, but the amount cannot be measured with sufficient reliability.
How should this be treated?
A. Recognize a provision in the statement of financial position.
B. Ignore the event until the amount is certain.
C. Disclose a contingent liability in the notes to the financial statements.
D. Recognize a contingent asset to offset the potential loss.
, CORRECT ANSWER : C
Rationale: If an outflow is probable but cannot be measured reliably, it does not meet the
criteria for a provision and must be disclosed as a contingent liability. A is incorrect because
reliability is lacking; B is incorrect as disclosure is required; D is incorrect as contingent assets
are never recognized.
7. Under the Conceptual Framework, what is the primary objective of general-purpose financial
reporting?
A. To determine the tax liability of the entity.
B. To provide financial information about the reporting entity that is useful to existing and
potential investors, lenders, and other creditors.
C. To assist management in making operational decisions.
D. To report on the efficiency of the board of directors.
CORRECT ANSWER : B
Rationale: The objective of financial reporting is to provide information useful for decision-
making by capital providers. While other groups may use the statements, the primary focus is on
resource providers.
8. Which of the following is considered a "fundamental" qualitative characteristic of financial
information?
A. Verifiability
B. Timeliness
C. Relevance
D. Comparability
CORRECT ANSWER : C
Rationale: The Conceptual Framework identifies two fundamental qualitative characteristics:
relevance and faithful representation. Verifiability, timeliness, comparability, and
understandability are "enhancing" characteristics.
9. A company changes its depreciation method for machinery from straight-line to reducing
balance. How is this treated?
A. As a change in accounting estimate.
Answers/Plus a Rationale Updated 2026
A+/Instant Download PDF
Table of Contents
1. Conceptual Framework for Financial Reporting
2. Property, Plant and Equipment (IAS 16)
3. Intangible Assets (IAS 38)
4. Impairment of Assets (IAS 36)
5. Revenue from Contracts with Customers (IFRS 15)
6. Provisions, Contingent Liabilities and Contingent Assets (IAS 37)
7. Presentation of Financial Statements (IAS 1)
8. Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)
1. A company acquires a specialized machine for R500,000. It incurs R20,000 for installation,
R10,000 for safety testing, and R5,000 for training staff to operate it. According to IAS 16, what
is the initial cost of the asset?
A. R500,000
B. R530,000
C. R535,000
D. R520,000
, CORRECT ANSWER : B
Rationale: The initial cost includes all directly attributable costs to bring the asset to the
location and condition necessary for it to be capable of operating. Installation and testing costs
are capitalized, whereas staff training costs are expensed as they are not necessary to prepare
the asset for its intended use.
2. An entity identifies that an item of property, plant, and equipment has been impaired. The
carrying amount is R800,000, the fair value less costs to sell is R700,000, and the value in use is
R750,000. What is the impairment loss to be recognized?
A. R100,000
B. R50,000
C. R50,000
D. R0
CORRECT ANSWER : C
Rationale: The recoverable amount is the higher of fair value less costs to sell (R700,000) and
value in use (R750,000), which is R750,000. The impairment loss is the difference between the
carrying amount (R800,000) and the recoverable amount (R750,000), resulting in a loss of
R50,000.
3. Which of the following criteria must be met for an intangible asset to be recognized under IAS
38?
A. It is held for sale in the ordinary course of business.
B. It is a physical asset that provides future economic benefits.
C. It is identifiable, controlled by the entity, and will provide future economic benefits.
D. It has a finite useful life and is amortized over 20 years.
CORRECT ANSWER : C
Rationale: IAS 38 requires an intangible asset to be identifiable, controlled, and expected to
provide future economic benefits. A is incorrect as it describes inventory; B is incorrect as
intangible assets lack physical substance; D is incorrect as some intangible assets have
indefinite lives.
,4. A company enters a contract to provide a service over 12 months for R120,000. At the end of
month 3, the company has completed 25% of the performance obligation. How much revenue
should be recognized under IFRS 15?
A. R120,000
B. R10,000
C. R30,000
D. R90,000
CORRECT ANSWER : C
Rationale: Under IFRS 15, revenue is recognized as the performance obligation is satisfied.
Since 25% of the service is completed, 25% of the transaction price (R120,000 × 0.25 =
R30,000) is recognized as revenue.
5. When a change in accounting estimate occurs, how must the entity account for it?
A. Retrospectively, by restating prior period financial statements.
B. Prospectively, by including it in the profit or loss of the period of change and future
periods.
C. By adjusting the opening balance of retained earnings.
D. By disclosure in the notes without adjusting any financial figures.
CORRECT ANSWER : B
Rationale: IAS 8 requires changes in accounting estimates to be handled prospectively.
Retrospective application is reserved for changes in accounting policy or correction of errors.
6. A lawsuit is pending against a company. It is probable that an outflow of resources will be
required to settle the obligation, but the amount cannot be measured with sufficient reliability.
How should this be treated?
A. Recognize a provision in the statement of financial position.
B. Ignore the event until the amount is certain.
C. Disclose a contingent liability in the notes to the financial statements.
D. Recognize a contingent asset to offset the potential loss.
, CORRECT ANSWER : C
Rationale: If an outflow is probable but cannot be measured reliably, it does not meet the
criteria for a provision and must be disclosed as a contingent liability. A is incorrect because
reliability is lacking; B is incorrect as disclosure is required; D is incorrect as contingent assets
are never recognized.
7. Under the Conceptual Framework, what is the primary objective of general-purpose financial
reporting?
A. To determine the tax liability of the entity.
B. To provide financial information about the reporting entity that is useful to existing and
potential investors, lenders, and other creditors.
C. To assist management in making operational decisions.
D. To report on the efficiency of the board of directors.
CORRECT ANSWER : B
Rationale: The objective of financial reporting is to provide information useful for decision-
making by capital providers. While other groups may use the statements, the primary focus is on
resource providers.
8. Which of the following is considered a "fundamental" qualitative characteristic of financial
information?
A. Verifiability
B. Timeliness
C. Relevance
D. Comparability
CORRECT ANSWER : C
Rationale: The Conceptual Framework identifies two fundamental qualitative characteristics:
relevance and faithful representation. Verifiability, timeliness, comparability, and
understandability are "enhancing" characteristics.
9. A company changes its depreciation method for machinery from straight-line to reducing
balance. How is this treated?
A. As a change in accounting estimate.
