FAC1503 Exam Pack 2026/2027 - Financial
Accounting Principles for Law Practitioners with
Detailed Rationales UNISA Graded A+ 100%
Verified Solutions - Complete 118 Verified Q&A
with Answers & Rationales for Exam Prep
Q1
A law firm receives a R120,000 retainer in December for services to be rendered evenly over the next six
months. Under IFRS, what is the effect on the firm's financial statements at December 31?
A. Recognize R120,000 revenue and no liability.
B. Recognize R20,000 revenue and R100,000 deferred revenue.
C. Recognize R120,000 deferred revenue and no revenue.
D. Recognize R100,000 revenue and R20,000 unearned revenue.
Answer: B
Rationale: Under IFRS 15, revenue is recognized as performance obligations are satisfied. One month of
service is rendered, so R20,000 is earned; the remaining R100,000 is a contract liability (deferred
revenue). Options A and D misstate the earned portion, and C ignores the service already provided.
Q2
Which qualitative characteristic of useful financial information is most directly compromised when a law
firm deliberately delays recognizing a probable malpractice loss to avoid alarming partners?
A. Comparability
B. Timeliness
C. Verifiability
D. Understandability
Answer: B
Rationale: Timeliness requires information to be available to decision-makers before it loses its capacity
to influence decisions. Delaying recognition of a probable loss violates timeliness. Comparability,
verifiability, and understandability are not the primary characteristics breached in this scenario.
,Q3
A client's business reports a current ratio of 2.5 and a quick ratio of 0.8. Which conclusion is most
defensible for a lawyer assessing the client's short-term solvency?
A. The client is highly liquid because the current ratio exceeds 2.
B. The client may face liquidity strain because inventory and prepaids dominate current assets.
C. The client has excessive cash and should invest surplus funds.
D. The quick ratio is irrelevant if the current ratio is above 2.
Answer: B
Rationale: A high current ratio with a low quick ratio indicates that current assets are concentrated in
less-liquid items like inventory and prepayments. This signals potential short-term liquidity risk. Options A
and D ignore the quick ratio's purpose, and C is unsupported by the data.
Q4
During litigation, an expert is asked to determine whether a company's recognition of a R5 million
provision for a pending lawsuit complies with IAS 37. Which condition is essential for recognition?
A. The lawsuit has been filed in court.
B. A reliable estimate can be made and a present obligation exists from a past event.
C. The company's legal counsel believes the suit is frivolous.
D. The amount is disclosed in the notes only.
Answer: B
Rationale: IAS 37 requires a present obligation from a past event, probable outflow, and reliable estimate
for recognition. Filing alone (A) does not create a present obligation; a frivolous suit (C) likely fails the
probable outflow criterion; and note disclosure only (D) applies when recognition criteria are not met.
Q5
A law firm uses the allowance method for doubtful debts. It estimates 5% of R800,000 receivables are
uncollectible. The existing allowance has a credit balance of R10,000. What is the bad debt expense for
the year?
A. R40,000
B. R30,000
C. R50,000
D. R10,000
Answer: B
Rationale: Required allowance is 5% × R800,000 = R40,000. Since the allowance already has a R10,000
credit balance, the adjustment (bad debt expense) is R40,000 R10,000 = R30,000. Options A, C, and D
fail to account for the existing balance correctly.
,Q6
Under the Conceptual Framework, which measurement basis is most appropriate for a financial asset held
within a business model whose objective is to collect contractual cash flows that are solely payments of
principal and interest?
A. Fair value through profit or loss
B. Fair value through other comprehensive income
C. Amortized cost
D. Revaluation model
Answer: C
Rationale: IFRS 9 requires amortized cost for financial assets held to collect contractual cash flows that
are solely payments of principal and interest. FVTPL and FVOCI apply to other business models or cash
flow characteristics, and the revaluation model is for property, plant, and equipment under IAS 16.
Q7
A company issues 10,000 shares with a par value of R1 at R5 per share. What is the correct journal entry?
A. Debit Cash R50,000; Credit Share Capital R10,000; Credit Share Premium R40,000
B. Debit Cash R10,000; Credit Share Capital R10,000
C. Debit Cash R50,000; Credit Share Capital R50,000
D. Debit Share Capital R10,000; Debit Share Premium R40,000; Credit Cash R50,000
Answer: A
Rationale: Cash increases by R50,000 (10,000 × R5). Share capital is credited for par value (10,000 × R1
= R10,000), and the excess over par (R40,000) is credited to share premium. Options B and C misstate
share capital and ignore premium; D reverses the entry.
Q8
In a legal dispute over profit distribution, a partner contributes assets with a book value of R200,000 and
fair value of R250,000 to a partnership. At what amount should the assets be recorded?
A. R200,000, the contributing partner's book value
B. R250,000, the fair value at contribution date
C. R225,000, the average of book and fair value
D. R0, until the assets are sold
Answer: B
Rationale: Under IFRS and partnership accounting principles, non-cash assets contributed to a
partnership are recorded at fair value at the date of contribution. Book value (A) is irrelevant; averaging (C)
is not permitted; and D ignores the transfer of control and risks.
, Q9
A company's statement of cash flows shows a large positive operating cash flow but a net loss. Which
scenario best explains this apparent contradiction?
A. The company sold a major subsidiary for cash.
B. The company recorded significant non-cash expenses such as depreciation and impairment.
C. The company issued shares for cash.
D. The company repaid long-term debt.
Answer: B
Rationale: Non-cash expenses like depreciation and impairment reduce net income but do not use cash,
so they are added back in the operating section, potentially turning a net loss into positive operating cash
flow. Options A, C, and D affect investing or financing activities, not operating cash flow.
Q10
Which internal control weakness is most likely to allow a law firm's bookkeeper to misappropriate client
trust funds without detection?
A. Monthly bank reconciliations are performed by the bookkeeper.
B. The firm uses a single bank account for all client funds.
C. All disbursements require two partner signatures.
D. Client trust ledgers are reconciled to the bank monthly by a partner.
Answer: A
Rationale: Segregation of duties is a fundamental internal control. If the same person who handles cash
also performs bank reconciliations, they can conceal misappropriation. Options B, C, and D either do not
directly enable concealment or represent stronger controls.
Q11
Under IFRS, a law firm receives R120,000 cash on 1 December for legal services to be rendered evenly
over six months beginning 1 December. Under the accrual basis, what is the effect on the financial
statements for the year ended 31 December?
A. Recognize R120,000 as revenue and no liability.
B. Recognize R20,000 as revenue and R100,000 as a deferred (unearned) income liability.
C. Recognize R100,000 as revenue and R20,000 as a prepaid expense.
D. Recognize no revenue and record R120,000 as a contingent asset.
Answer: B
Rationale: Under accrual accounting, revenue is recognized as the performance obligation is satisfied;
one month (R20,000) is earned by 31 December, leaving R100,000 as a contract liability (deferred
income). Options A and C misstate the earned portion, and D is incorrect because a contract liability, not a
contingent asset, arises from cash received in advance.
Accounting Principles for Law Practitioners with
Detailed Rationales UNISA Graded A+ 100%
Verified Solutions - Complete 118 Verified Q&A
with Answers & Rationales for Exam Prep
Q1
A law firm receives a R120,000 retainer in December for services to be rendered evenly over the next six
months. Under IFRS, what is the effect on the firm's financial statements at December 31?
A. Recognize R120,000 revenue and no liability.
B. Recognize R20,000 revenue and R100,000 deferred revenue.
C. Recognize R120,000 deferred revenue and no revenue.
D. Recognize R100,000 revenue and R20,000 unearned revenue.
Answer: B
Rationale: Under IFRS 15, revenue is recognized as performance obligations are satisfied. One month of
service is rendered, so R20,000 is earned; the remaining R100,000 is a contract liability (deferred
revenue). Options A and D misstate the earned portion, and C ignores the service already provided.
Q2
Which qualitative characteristic of useful financial information is most directly compromised when a law
firm deliberately delays recognizing a probable malpractice loss to avoid alarming partners?
A. Comparability
B. Timeliness
C. Verifiability
D. Understandability
Answer: B
Rationale: Timeliness requires information to be available to decision-makers before it loses its capacity
to influence decisions. Delaying recognition of a probable loss violates timeliness. Comparability,
verifiability, and understandability are not the primary characteristics breached in this scenario.
,Q3
A client's business reports a current ratio of 2.5 and a quick ratio of 0.8. Which conclusion is most
defensible for a lawyer assessing the client's short-term solvency?
A. The client is highly liquid because the current ratio exceeds 2.
B. The client may face liquidity strain because inventory and prepaids dominate current assets.
C. The client has excessive cash and should invest surplus funds.
D. The quick ratio is irrelevant if the current ratio is above 2.
Answer: B
Rationale: A high current ratio with a low quick ratio indicates that current assets are concentrated in
less-liquid items like inventory and prepayments. This signals potential short-term liquidity risk. Options A
and D ignore the quick ratio's purpose, and C is unsupported by the data.
Q4
During litigation, an expert is asked to determine whether a company's recognition of a R5 million
provision for a pending lawsuit complies with IAS 37. Which condition is essential for recognition?
A. The lawsuit has been filed in court.
B. A reliable estimate can be made and a present obligation exists from a past event.
C. The company's legal counsel believes the suit is frivolous.
D. The amount is disclosed in the notes only.
Answer: B
Rationale: IAS 37 requires a present obligation from a past event, probable outflow, and reliable estimate
for recognition. Filing alone (A) does not create a present obligation; a frivolous suit (C) likely fails the
probable outflow criterion; and note disclosure only (D) applies when recognition criteria are not met.
Q5
A law firm uses the allowance method for doubtful debts. It estimates 5% of R800,000 receivables are
uncollectible. The existing allowance has a credit balance of R10,000. What is the bad debt expense for
the year?
A. R40,000
B. R30,000
C. R50,000
D. R10,000
Answer: B
Rationale: Required allowance is 5% × R800,000 = R40,000. Since the allowance already has a R10,000
credit balance, the adjustment (bad debt expense) is R40,000 R10,000 = R30,000. Options A, C, and D
fail to account for the existing balance correctly.
,Q6
Under the Conceptual Framework, which measurement basis is most appropriate for a financial asset held
within a business model whose objective is to collect contractual cash flows that are solely payments of
principal and interest?
A. Fair value through profit or loss
B. Fair value through other comprehensive income
C. Amortized cost
D. Revaluation model
Answer: C
Rationale: IFRS 9 requires amortized cost for financial assets held to collect contractual cash flows that
are solely payments of principal and interest. FVTPL and FVOCI apply to other business models or cash
flow characteristics, and the revaluation model is for property, plant, and equipment under IAS 16.
Q7
A company issues 10,000 shares with a par value of R1 at R5 per share. What is the correct journal entry?
A. Debit Cash R50,000; Credit Share Capital R10,000; Credit Share Premium R40,000
B. Debit Cash R10,000; Credit Share Capital R10,000
C. Debit Cash R50,000; Credit Share Capital R50,000
D. Debit Share Capital R10,000; Debit Share Premium R40,000; Credit Cash R50,000
Answer: A
Rationale: Cash increases by R50,000 (10,000 × R5). Share capital is credited for par value (10,000 × R1
= R10,000), and the excess over par (R40,000) is credited to share premium. Options B and C misstate
share capital and ignore premium; D reverses the entry.
Q8
In a legal dispute over profit distribution, a partner contributes assets with a book value of R200,000 and
fair value of R250,000 to a partnership. At what amount should the assets be recorded?
A. R200,000, the contributing partner's book value
B. R250,000, the fair value at contribution date
C. R225,000, the average of book and fair value
D. R0, until the assets are sold
Answer: B
Rationale: Under IFRS and partnership accounting principles, non-cash assets contributed to a
partnership are recorded at fair value at the date of contribution. Book value (A) is irrelevant; averaging (C)
is not permitted; and D ignores the transfer of control and risks.
, Q9
A company's statement of cash flows shows a large positive operating cash flow but a net loss. Which
scenario best explains this apparent contradiction?
A. The company sold a major subsidiary for cash.
B. The company recorded significant non-cash expenses such as depreciation and impairment.
C. The company issued shares for cash.
D. The company repaid long-term debt.
Answer: B
Rationale: Non-cash expenses like depreciation and impairment reduce net income but do not use cash,
so they are added back in the operating section, potentially turning a net loss into positive operating cash
flow. Options A, C, and D affect investing or financing activities, not operating cash flow.
Q10
Which internal control weakness is most likely to allow a law firm's bookkeeper to misappropriate client
trust funds without detection?
A. Monthly bank reconciliations are performed by the bookkeeper.
B. The firm uses a single bank account for all client funds.
C. All disbursements require two partner signatures.
D. Client trust ledgers are reconciled to the bank monthly by a partner.
Answer: A
Rationale: Segregation of duties is a fundamental internal control. If the same person who handles cash
also performs bank reconciliations, they can conceal misappropriation. Options B, C, and D either do not
directly enable concealment or represent stronger controls.
Q11
Under IFRS, a law firm receives R120,000 cash on 1 December for legal services to be rendered evenly
over six months beginning 1 December. Under the accrual basis, what is the effect on the financial
statements for the year ended 31 December?
A. Recognize R120,000 as revenue and no liability.
B. Recognize R20,000 as revenue and R100,000 as a deferred (unearned) income liability.
C. Recognize R100,000 as revenue and R20,000 as a prepaid expense.
D. Recognize no revenue and record R120,000 as a contingent asset.
Answer: B
Rationale: Under accrual accounting, revenue is recognized as the performance obligation is satisfied;
one month (R20,000) is earned by 31 December, leaving R100,000 as a contract liability (deferred
income). Options A and C misstate the earned portion, and D is incorrect because a contract liability, not a
contingent asset, arises from cash received in advance.
