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CPA PEP CORE EXAM PRACTICE SET ACTUAL STUDY
GUIDE EXAM 2026-27 VERSION
To help you prepare for the CPA Canada Professional Education Program (PEP) Core 1 &
Core 2 Examination, here is a full 100-question practice exam.
This review is built specifically to mimic the multi-competency blueprint of the CPA PEP
Blueprint. It covers the core technical competencies: Financial Reporting (FR), Management
Accounting (MA), Audit and Assurance (AS), Corporate Finance (FN), Taxation (TX), and
Strategy and Governance (SG) under both IFRS and ASPE.
Following the requested format, the questions are presented plainly, the correct option is in
bold, and the detailed analysis is provided in italics.
Domain 1: Financial Reporting (FR) – IFRS & ASPE
1. Under IFRS 15 (Revenue from Contracts with Customers), a company enters
into a contract to build a custom asset for a client. The contract specifies that
if the company fails to meet a deadline, it must pay a penalty. This penalty is
handled under which step of the revenue model?
• A) Step 2: Identify the performance obligations in the contract.
• B) Step 3: Determine the transaction price, treating the penalty as
variable consideration.
• C) Step 4: Allocate the transaction price to the performance obligations.
• D) Step 5: Recognize revenue when or as the entity satisfies a
performance obligation.
• Explanation: Penalties, discounts, rebates, and performance bonuses
represent variable consideration. Under Step 3 of IFRS 15, an entity must
estimate the amount of variable consideration using either the expected
value or most likely amount method, subject to the constraint rule.
2. Under ASPE, how does an enterprise choose between the equity method
and the cost method to account for an investment where it holds significant
influence?
,2
• A) The equity method is mandatory for all significant influence
investments under ASPE.
• B) The enterprise can make an accounting policy choice to use either
the equity method or the cost method.
• C) The enterprise must use the fair value through profit or loss method.
• D) The choice depends strictly on the percentage of voting shares held.
• Explanation: Unlike IFRS (IAS 28), which mandates the equity method for
associates, ASPE (Section 3051) allows an accounting policy choice. A
company can account for significantly influenced investments using
either the cost method or the equity method.
3. A company purchases a brand-new production machine on January 1, Year
1, for $200,000. It incurs $20,000 in shipping costs, $10,000 in direct
installation costs, and $5,000 in general administrative overhead. Under IAS
16 (Property, Plant and Equipment), calculate the initial capitalized cost of the
machine.
• A) $200,000
• B) $235,000
• C) $230,000
• D) $220,000
• Explanation: Capitalized costs include all expenditures directly
attributable to bringing the asset to the location and condition necessary
for it to operate as intended. Shipping and installation are directly
attributable ($200,000 + $20,000 + $10,000 = $230,000). General
administrative overhead must be expensed immediately.
4. Under IAS 36 (Impairment of Assets), an asset’s "recoverable amount" is
defined mathematically as the:
• A) Net book value minus accumulated depreciation.
• B) Higher of its fair value less costs of disposal (FVLCD) and its value in
use (VIU).
,3
• C) Lower of its historical cost and net realizable value.
• D) Present value of its future expected dividend payouts.
• Explanation: When testing an asset or a Cash-Generating Unit (CGU) for
impairment, the carrying amount is compared to the recoverable
amount. The recoverable amount is the higher of what the asset can
fetch in a sale (FVLCD) and the value it generates by being kept and
operated (VIU).
5. A company develops a new software platform. Under IAS 38 (Intangible
Assets), expenditures incurred during the "Research Phase" and the
"Development Phase" are handled as follows:
• A) Both research and development costs must be capitalized as
intangible assets.
• B) Both research and development costs must be expensed immediately
as incurred.
• C) Research costs must be expensed as incurred; development costs
must be capitalized only if all six strict capitalization criteria are met.
• D) Research costs are capitalized, while development costs are expensed
over a 5-year window.
• Explanation: IAS 38 prohibits the capitalization of research costs due to
uncertainty of future economic benefits. Development costs can only be
capitalized once the entity can demonstrate technical feasibility, intent to
complete, availability of resources, ability to use/sell, a clear market, and
reliable cost measurement.
6. A retailer sells gift cards to customers. Under IFRS, at the moment cash is
collected from the sale of a gift card, how should the transaction be
recorded?
• A) Debit Cash; Credit Sales Revenue
• B) Debit Cash; Credit Contract Liability (Deferred Revenue)
• C) Debit Cash; Credit Retained Earnings
• D) Debit Accounts Receivable; Credit Unearned Revenue
, 4
• Explanation: Revenue cannot be recognized because no performance
obligation has been met. The sale of a gift card creates an obligation to
provide goods or services in the future, which is recorded as a Contract
Liability (Deferred Revenue) until redemption.
7. Under ASPE, when an entity enters into a lease as a lessee, what criteria
trigger the lease to be classified as a Capital Lease?
• A) The lease transfers ownership to the lessee automatically by the end
of the term.
• B) The lease contains a bargain purchase option.
• C) The lease term is equal to 75% or more of the economic life of the
asset, or the PV of minimum lease payments is 90% or more of the fair
value.
• D) Any of the above criteria are met.
• Explanation: Under ASPE Section 3065, a lease is classified as a capital
lease if it meets any one of these criteria, which signify that substantially
all the benefits and risks of ownership have transferred to the lessee.
8. A company switches its inventory valuation model from the Weighted
Average Cost method to the FIFO method. Under IAS 8, how must this change
in accounting policy be applied?
• A) Prospectively, adjusting only the current and future financial
statements.
• B) Retrospectively, restating the opening balances of equity and prior
period comparative figures as if the policy had always been in place.
• C) By charging the entire historical variance directly to current year
marketing expenses.
• D) Policy changes are strictly illegal under IFRS once selected.
• Explanation: IAS 8 mandates that changes in accounting policies must be
applied retrospectively to ensure comparability across historical periods,
unless it is entirely impracticable to determine the period-specific effects.
CPA PEP CORE EXAM PRACTICE SET ACTUAL STUDY
GUIDE EXAM 2026-27 VERSION
To help you prepare for the CPA Canada Professional Education Program (PEP) Core 1 &
Core 2 Examination, here is a full 100-question practice exam.
This review is built specifically to mimic the multi-competency blueprint of the CPA PEP
Blueprint. It covers the core technical competencies: Financial Reporting (FR), Management
Accounting (MA), Audit and Assurance (AS), Corporate Finance (FN), Taxation (TX), and
Strategy and Governance (SG) under both IFRS and ASPE.
Following the requested format, the questions are presented plainly, the correct option is in
bold, and the detailed analysis is provided in italics.
Domain 1: Financial Reporting (FR) – IFRS & ASPE
1. Under IFRS 15 (Revenue from Contracts with Customers), a company enters
into a contract to build a custom asset for a client. The contract specifies that
if the company fails to meet a deadline, it must pay a penalty. This penalty is
handled under which step of the revenue model?
• A) Step 2: Identify the performance obligations in the contract.
• B) Step 3: Determine the transaction price, treating the penalty as
variable consideration.
• C) Step 4: Allocate the transaction price to the performance obligations.
• D) Step 5: Recognize revenue when or as the entity satisfies a
performance obligation.
• Explanation: Penalties, discounts, rebates, and performance bonuses
represent variable consideration. Under Step 3 of IFRS 15, an entity must
estimate the amount of variable consideration using either the expected
value or most likely amount method, subject to the constraint rule.
2. Under ASPE, how does an enterprise choose between the equity method
and the cost method to account for an investment where it holds significant
influence?
,2
• A) The equity method is mandatory for all significant influence
investments under ASPE.
• B) The enterprise can make an accounting policy choice to use either
the equity method or the cost method.
• C) The enterprise must use the fair value through profit or loss method.
• D) The choice depends strictly on the percentage of voting shares held.
• Explanation: Unlike IFRS (IAS 28), which mandates the equity method for
associates, ASPE (Section 3051) allows an accounting policy choice. A
company can account for significantly influenced investments using
either the cost method or the equity method.
3. A company purchases a brand-new production machine on January 1, Year
1, for $200,000. It incurs $20,000 in shipping costs, $10,000 in direct
installation costs, and $5,000 in general administrative overhead. Under IAS
16 (Property, Plant and Equipment), calculate the initial capitalized cost of the
machine.
• A) $200,000
• B) $235,000
• C) $230,000
• D) $220,000
• Explanation: Capitalized costs include all expenditures directly
attributable to bringing the asset to the location and condition necessary
for it to operate as intended. Shipping and installation are directly
attributable ($200,000 + $20,000 + $10,000 = $230,000). General
administrative overhead must be expensed immediately.
4. Under IAS 36 (Impairment of Assets), an asset’s "recoverable amount" is
defined mathematically as the:
• A) Net book value minus accumulated depreciation.
• B) Higher of its fair value less costs of disposal (FVLCD) and its value in
use (VIU).
,3
• C) Lower of its historical cost and net realizable value.
• D) Present value of its future expected dividend payouts.
• Explanation: When testing an asset or a Cash-Generating Unit (CGU) for
impairment, the carrying amount is compared to the recoverable
amount. The recoverable amount is the higher of what the asset can
fetch in a sale (FVLCD) and the value it generates by being kept and
operated (VIU).
5. A company develops a new software platform. Under IAS 38 (Intangible
Assets), expenditures incurred during the "Research Phase" and the
"Development Phase" are handled as follows:
• A) Both research and development costs must be capitalized as
intangible assets.
• B) Both research and development costs must be expensed immediately
as incurred.
• C) Research costs must be expensed as incurred; development costs
must be capitalized only if all six strict capitalization criteria are met.
• D) Research costs are capitalized, while development costs are expensed
over a 5-year window.
• Explanation: IAS 38 prohibits the capitalization of research costs due to
uncertainty of future economic benefits. Development costs can only be
capitalized once the entity can demonstrate technical feasibility, intent to
complete, availability of resources, ability to use/sell, a clear market, and
reliable cost measurement.
6. A retailer sells gift cards to customers. Under IFRS, at the moment cash is
collected from the sale of a gift card, how should the transaction be
recorded?
• A) Debit Cash; Credit Sales Revenue
• B) Debit Cash; Credit Contract Liability (Deferred Revenue)
• C) Debit Cash; Credit Retained Earnings
• D) Debit Accounts Receivable; Credit Unearned Revenue
, 4
• Explanation: Revenue cannot be recognized because no performance
obligation has been met. The sale of a gift card creates an obligation to
provide goods or services in the future, which is recorded as a Contract
Liability (Deferred Revenue) until redemption.
7. Under ASPE, when an entity enters into a lease as a lessee, what criteria
trigger the lease to be classified as a Capital Lease?
• A) The lease transfers ownership to the lessee automatically by the end
of the term.
• B) The lease contains a bargain purchase option.
• C) The lease term is equal to 75% or more of the economic life of the
asset, or the PV of minimum lease payments is 90% or more of the fair
value.
• D) Any of the above criteria are met.
• Explanation: Under ASPE Section 3065, a lease is classified as a capital
lease if it meets any one of these criteria, which signify that substantially
all the benefits and risks of ownership have transferred to the lessee.
8. A company switches its inventory valuation model from the Weighted
Average Cost method to the FIFO method. Under IAS 8, how must this change
in accounting policy be applied?
• A) Prospectively, adjusting only the current and future financial
statements.
• B) Retrospectively, restating the opening balances of equity and prior
period comparative figures as if the policy had always been in place.
• C) By charging the entire historical variance directly to current year
marketing expenses.
• D) Policy changes are strictly illegal under IFRS once selected.
• Explanation: IAS 8 mandates that changes in accounting policies must be
applied retrospectively to ensure comparability across historical periods,
unless it is entirely impracticable to determine the period-specific effects.
