ACC211
Financial Accounting
Midterm Exam Prep
2026
(Questions & Answers)
Multiple Choice Questions (MCQs)
Which of the following best describes the 'fair value hierarchy' in accounting standards?
a) Levels 1, 2, and 3 based on observable inputs
b) Classification of assets into current and non-current
c) Levels for impairment testing
d) Different methods of depreciation
Answer: a) Levels 1, 2, and 3 based on observable inputs
Rationale: Fair value hierarchy prioritizes inputs used to measure fair value starting with quoted
prices in active markets (Level 1), inputs other than quoted prices that are observable (Level 2),
and unobservable inputs (Level 3).
According to IFRS 15, which of the following criteria must be met to recognize revenue?
a) Transfer of control
b) Transfer of risks and rewards
c) Collection assurance
d) Contract completion
Answer: a) Transfer of control
Rationale: IFRS 15 requires that revenue be recognized when control over goods or services
transfers to the customer.
In consolidated financial statements, how are non-controlling interests presented?
a) As liabilities
b) As equity separate from parent’s equity
c) Deducted from total equity
d) As part of retained earnings
Answer: b) As equity separate from parent’s equity
Rationale: Non-controlling interest is shown within equity but separately from the parent
,shareholders’ equity to reflect minority ownership.
What is the effect on goodwill when there is a revaluation of the acquired company’s
identifiable net assets before consolidation?
a) Goodwill decreases
b) Goodwill increases
c) Goodwill stays the same
d) Goodwill is eliminated
Answer: b) Goodwill increases
Rationale: Revaluation of net assets to fair value at acquisition can increase the assets' value,
increasing the goodwill calculated as the excess of purchase price over net identifiable assets.
Which of the following is NOT a component of Other Comprehensive Income (OCI)?
a) Foreign currency translation adjustments
b) Gains on revaluation of property, plant, and equipment
c) Dividend revenues
d) Gains or losses on financial assets classified as FVOCI
Answer: c) Dividend revenues
Rationale: Dividend revenues are recognized in profit or loss, not OCI.
True/False Questions
Under IFRS, long-term construction contracts must be accounted for using the percentage of
completion method if reliable estimates are available.
Answer: True
Rationale: IFRS requires percentage of completion when it is possible to make reliable
estimates of progress.
Financial liabilities measured at fair value through profit or loss require changes in fair value to
be reported in OCI.
Answer: False
Rationale: Changes in fair value of financial liabilities measured at FVTPL are recognized in profit
or loss, not OCI.
Deferred tax assets are recognized only if it is probable that future taxable profits will be
available against which temporary differences can be utilized.
Answer: True
Rationale: Recognition of deferred tax assets depends on the probability of future taxable
profits.
According to IAS 38, internally generated goodwill can be recognized as an intangible asset.
Answer: False
,Rationale: IAS 38 prohibits recognition of internally generated goodwill as an asset.
The equity method is applied when an investor has significant influence over the investee,
typically between 20% and 50% ownership.
Answer: True
Rationale: This ownership range generally indicates significant influence requiring equity
method accounting.
Short Answer Questions
Explain how impairment losses on cash-generating units (CGUs) are allocated under IFRS.
Answer: Impairment losses are first allocated to reduce the carrying amount of any goodwill
allocated to the CGU, then to other assets of the CGU pro-rata based on the carrying amounts.
Rationale: This ensures goodwill is impaired first, as it absorbs losses more easily due to its
nature.
What is 'step acquisition' and how is it accounted for?
Answer: Step acquisition is buying additional shares in an investee over time to gain control.
The previously held equity interest is remeasured to fair value at the date control is obtained,
with gains or losses recognized in profit or loss.
Rationale: This update to fair value reflects the new control status.
Define ‘expected credit loss’ (ECL) model and its relevance in IFRS 9.
Answer: ECL model requires entities to recognize an allowance for credit losses expected over
the life of financial assets rather than incurred losses, reflecting forward-looking information.
Rationale: This enhances timely recognition of credit risk changes.
Briefly describe the accounting treatment for government grants related to assets.
Answer: Government grants related to assets are recognized either as deferred income
amortized to profit or loss over the asset’s useful life or as a deduction from the asset’s carrying
amount.
Rationale: Both approaches align income recognition with asset usage.
What disclosures are required for leases under IFRS 16 by lessees?
Answer: Lessees must disclose information about the nature of leases, maturity analysis of
lease liabilities, expense related to short-term and low value leases, and the carrying amounts
of right-of-use assets.
Rationale: This ensures transparency about lease obligations and assets.
Matching Questions
Match the accounting treatment with the correct standard or concept.
, | a) IAS 36 | 1) Revenue recognition criteria |
| b) IFRS 9 | 2) Impairment of assets |
| c) IFRS 15 | 3) Expected credit loss model |
| d) IAS 16 | 4) Property, plant and equipment measurement |
Match the letter to the correct number:
Answer: a-2, b-3, c-1, d-4
Rationale: IAS 36 covers impairment; IFRS 9 covers financial instruments and ECL; IFRS 15
focuses on revenue recognition; IAS 16 addresses PPE.
Match the key term to its description:
a) Control
b) Recognition
c) Fair value
d) Significant influence
Ability to govern financial and operating policies
Entry of item into financial statements
Price received to sell an asset in an orderly transaction
Power to participate in financial and operating policy decisions without control
Answer: a-1, b-2, c-3, d-4
Rationale: Clear accounting concept definitions.
Fill-in-the-Blank Questions
Under IFRS 3, the excess of the purchase consideration over the fair value of identifiable net
assets acquired is recognized as ________.
Answer: Goodwill
Rationale: Goodwill represents the premium paid over identifiable net assets.
In a finance lease, the lessee recognizes a right-of-use asset and _____ liability on the balance
sheet.
Answer: Lease
Rationale: Lease liability reflects obligation to make lease payments.
The difference between the carrying amount and recoverable amount of an asset is called
________.
Answer: Impairment loss
Rationale: This loss reflects a decline in asset value requiring adjustment.
IFRS 9 classifies financial assets into amortized cost, fair value through profit or loss, and fair
Financial Accounting
Midterm Exam Prep
2026
(Questions & Answers)
Multiple Choice Questions (MCQs)
Which of the following best describes the 'fair value hierarchy' in accounting standards?
a) Levels 1, 2, and 3 based on observable inputs
b) Classification of assets into current and non-current
c) Levels for impairment testing
d) Different methods of depreciation
Answer: a) Levels 1, 2, and 3 based on observable inputs
Rationale: Fair value hierarchy prioritizes inputs used to measure fair value starting with quoted
prices in active markets (Level 1), inputs other than quoted prices that are observable (Level 2),
and unobservable inputs (Level 3).
According to IFRS 15, which of the following criteria must be met to recognize revenue?
a) Transfer of control
b) Transfer of risks and rewards
c) Collection assurance
d) Contract completion
Answer: a) Transfer of control
Rationale: IFRS 15 requires that revenue be recognized when control over goods or services
transfers to the customer.
In consolidated financial statements, how are non-controlling interests presented?
a) As liabilities
b) As equity separate from parent’s equity
c) Deducted from total equity
d) As part of retained earnings
Answer: b) As equity separate from parent’s equity
Rationale: Non-controlling interest is shown within equity but separately from the parent
,shareholders’ equity to reflect minority ownership.
What is the effect on goodwill when there is a revaluation of the acquired company’s
identifiable net assets before consolidation?
a) Goodwill decreases
b) Goodwill increases
c) Goodwill stays the same
d) Goodwill is eliminated
Answer: b) Goodwill increases
Rationale: Revaluation of net assets to fair value at acquisition can increase the assets' value,
increasing the goodwill calculated as the excess of purchase price over net identifiable assets.
Which of the following is NOT a component of Other Comprehensive Income (OCI)?
a) Foreign currency translation adjustments
b) Gains on revaluation of property, plant, and equipment
c) Dividend revenues
d) Gains or losses on financial assets classified as FVOCI
Answer: c) Dividend revenues
Rationale: Dividend revenues are recognized in profit or loss, not OCI.
True/False Questions
Under IFRS, long-term construction contracts must be accounted for using the percentage of
completion method if reliable estimates are available.
Answer: True
Rationale: IFRS requires percentage of completion when it is possible to make reliable
estimates of progress.
Financial liabilities measured at fair value through profit or loss require changes in fair value to
be reported in OCI.
Answer: False
Rationale: Changes in fair value of financial liabilities measured at FVTPL are recognized in profit
or loss, not OCI.
Deferred tax assets are recognized only if it is probable that future taxable profits will be
available against which temporary differences can be utilized.
Answer: True
Rationale: Recognition of deferred tax assets depends on the probability of future taxable
profits.
According to IAS 38, internally generated goodwill can be recognized as an intangible asset.
Answer: False
,Rationale: IAS 38 prohibits recognition of internally generated goodwill as an asset.
The equity method is applied when an investor has significant influence over the investee,
typically between 20% and 50% ownership.
Answer: True
Rationale: This ownership range generally indicates significant influence requiring equity
method accounting.
Short Answer Questions
Explain how impairment losses on cash-generating units (CGUs) are allocated under IFRS.
Answer: Impairment losses are first allocated to reduce the carrying amount of any goodwill
allocated to the CGU, then to other assets of the CGU pro-rata based on the carrying amounts.
Rationale: This ensures goodwill is impaired first, as it absorbs losses more easily due to its
nature.
What is 'step acquisition' and how is it accounted for?
Answer: Step acquisition is buying additional shares in an investee over time to gain control.
The previously held equity interest is remeasured to fair value at the date control is obtained,
with gains or losses recognized in profit or loss.
Rationale: This update to fair value reflects the new control status.
Define ‘expected credit loss’ (ECL) model and its relevance in IFRS 9.
Answer: ECL model requires entities to recognize an allowance for credit losses expected over
the life of financial assets rather than incurred losses, reflecting forward-looking information.
Rationale: This enhances timely recognition of credit risk changes.
Briefly describe the accounting treatment for government grants related to assets.
Answer: Government grants related to assets are recognized either as deferred income
amortized to profit or loss over the asset’s useful life or as a deduction from the asset’s carrying
amount.
Rationale: Both approaches align income recognition with asset usage.
What disclosures are required for leases under IFRS 16 by lessees?
Answer: Lessees must disclose information about the nature of leases, maturity analysis of
lease liabilities, expense related to short-term and low value leases, and the carrying amounts
of right-of-use assets.
Rationale: This ensures transparency about lease obligations and assets.
Matching Questions
Match the accounting treatment with the correct standard or concept.
, | a) IAS 36 | 1) Revenue recognition criteria |
| b) IFRS 9 | 2) Impairment of assets |
| c) IFRS 15 | 3) Expected credit loss model |
| d) IAS 16 | 4) Property, plant and equipment measurement |
Match the letter to the correct number:
Answer: a-2, b-3, c-1, d-4
Rationale: IAS 36 covers impairment; IFRS 9 covers financial instruments and ECL; IFRS 15
focuses on revenue recognition; IAS 16 addresses PPE.
Match the key term to its description:
a) Control
b) Recognition
c) Fair value
d) Significant influence
Ability to govern financial and operating policies
Entry of item into financial statements
Price received to sell an asset in an orderly transaction
Power to participate in financial and operating policy decisions without control
Answer: a-1, b-2, c-3, d-4
Rationale: Clear accounting concept definitions.
Fill-in-the-Blank Questions
Under IFRS 3, the excess of the purchase consideration over the fair value of identifiable net
assets acquired is recognized as ________.
Answer: Goodwill
Rationale: Goodwill represents the premium paid over identifiable net assets.
In a finance lease, the lessee recognizes a right-of-use asset and _____ liability on the balance
sheet.
Answer: Lease
Rationale: Lease liability reflects obligation to make lease payments.
The difference between the carrying amount and recoverable amount of an asset is called
________.
Answer: Impairment loss
Rationale: This loss reflects a decline in asset value requiring adjustment.
IFRS 9 classifies financial assets into amortized cost, fair value through profit or loss, and fair
