Page 1 of 85
FAC3701 General Financial Reporting ACTUAL EXAM
QUESTIONS AND CORRECT VERIFIED SOLUTIONS LATEST
UPDATE THIS YEAR – JUST RELEASED
Exam Coverage – FAC3701 General Financial Reporting
FAC3701 covers general financial reporting in accordance with International Financial Reporting
Standards (IFRS) . Key topics include: Conceptual Framework for Financial Reporting (elements,
recognition, measurement, definitions of assets/liabilities/equity/income/expenses) ; IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors (changes in estimates vs.
policies, retrospective application, error correction); IAS 12 Income Taxes (current tax, deferred
tax, statement of financial position approach, temporary differences, tax base
calculations) ; IFRS 15 Revenue from Contracts with Customers (five-step model, performance
obligations, variable consideration); IAS 37 Provisions, Contingent Liabilities and Contingent
Assets (recognition criteria, restructuring, onerous contracts, measurement); IAS 10 Events
after the Reporting Period (adjusting vs. non-adjusting events, dividends declared after
reporting period); IFRS 13 Fair Value Measurement (fair value hierarchy, highest and best use,
principal vs. most advantageous market, exit price) ; and Presentation of Financial
Statements (IAS 1) . The exam typically consists of two large scenario-based questions requiring
calculations, journal entries, and disclosure notes .
200 Randomized, Scenario-Based MCQs for FAC3701 Exam
1. A company changed its inventory valuation method from FIFO to weighted average. Under
IAS 8, how should this change be accounted for?
A) Prospectively from the date of change
B) Retrospectively by restating prior period financial statements
C) As an adjustment to retained earnings without restating prior periods
D) As a prior period error corrected in the current year
Answer: B
, Page 2 of 85
RATIONALE: A change in accounting policy under IAS 8 requires retrospective application,
restating prior periods unless impracticable.
2. A company purchased a delivery vehicle for R1,060,000 on 1 March 2022. Depreciation is 25%
straight-line. The director re-estimated the useful life to 5 years. The residual value remains
R100,000. What is the carrying amount for the year ended 29 February 2024 after the change?
A) R820,000
B) R588,000
C) R700,000
D) R500,000
Answer: B
RATIONALE: The change in useful life is a change in accounting estimate under IAS 8, applied
prospectively; carrying amount at change date is depreciated over the revised remaining useful
life.
3. A company received an insurance payment of R1,520,000 for a stolen welding machine. The
carrying amount of the stolen machine was R937,500. What is the correct accounting treatment
for the profit on disposal?
A) Recognise R1,520,000 as revenue
B) Recognise R582,500 as other income in profit or loss
C) Recognise the entire amount as a deferred gain
D) Offset the insurance payment against the cost of a new machine
Answer: B
, Page 3 of 85
RATIONALE: The profit on disposal is calculated as insurance proceeds (R1,520,000) minus
carrying amount (R937,500) = R582,500, recognised in profit or loss.
4. According to the Conceptual Framework, which definition correctly describes a liability?
A) A resource controlled by the entity as a result of past events
B) A present obligation arising from past events, expected to result in outflow of resources
C) The residual interest in assets after deducting liabilities
D) An increase in assets resulting from ordinary activities
Answer: B
RATIONALE: The Conceptual Framework defines a liability as a present obligation arising from
past events, the settlement of which is expected to result in an outflow of resources.
5. A company purchased a manufacturing plant for R3,200,000 financed by a mortgage bond at
11% interest. According to the Conceptual Framework, how should the plant and bond be
classified?
A) Plant as asset, bond as equity, interest as expense
B) Plant as asset, bond as liability, interest as expense
C) Plant as equity, bond as liability, interest as expense
D) Plant as liability, bond as asset, interest as expense
Answer: B
RATIONALE: The plant meets asset definition (controlled resource), the mortgage bond meets
liability definition (present obligation), and interest meets expense definition (decrease in
equity).
, Page 4 of 85
6. Under IFRS 13, which statement regarding fair value measurement is correct?
A) Fair value is an entity-specific value, not a market-based value
B) Fair value is the price that would be received to sell an asset (exit price) in an orderly
transaction
C) Fair value includes transaction costs in the measurement
D) Fair value is the price that would be paid to acquire an asset (entry price)
Answer: B
RATIONALE: IFRS 13 defines fair value as the exit price (price to sell an asset or transfer a
liability) in an orderly transaction between market participants.
7. A company declared a cash dividend of R840,000 on 25 December 2020, payable on 31
January 2021. How should this dividend be treated in the financial statements for the year
ended 31 December 2020?
A) Recognise as a liability on 25 December 2020
B) Do not recognise a liability in 2020; disclose in the notes
C) Recognise as an expense in 2020
D) Recognise as a reduction of retained earnings in 2020 with no disclosure
Answer: B
RATIONALE: Under IAS 10, dividends declared after the reporting period are non-adjusting
events; they are not recognised as liabilities at year-end but disclosed in the notes.
8. Under IFRS 15, when should revenue from the sale of goods be recognised?
A) When the goods are ordered by the customer
FAC3701 General Financial Reporting ACTUAL EXAM
QUESTIONS AND CORRECT VERIFIED SOLUTIONS LATEST
UPDATE THIS YEAR – JUST RELEASED
Exam Coverage – FAC3701 General Financial Reporting
FAC3701 covers general financial reporting in accordance with International Financial Reporting
Standards (IFRS) . Key topics include: Conceptual Framework for Financial Reporting (elements,
recognition, measurement, definitions of assets/liabilities/equity/income/expenses) ; IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors (changes in estimates vs.
policies, retrospective application, error correction); IAS 12 Income Taxes (current tax, deferred
tax, statement of financial position approach, temporary differences, tax base
calculations) ; IFRS 15 Revenue from Contracts with Customers (five-step model, performance
obligations, variable consideration); IAS 37 Provisions, Contingent Liabilities and Contingent
Assets (recognition criteria, restructuring, onerous contracts, measurement); IAS 10 Events
after the Reporting Period (adjusting vs. non-adjusting events, dividends declared after
reporting period); IFRS 13 Fair Value Measurement (fair value hierarchy, highest and best use,
principal vs. most advantageous market, exit price) ; and Presentation of Financial
Statements (IAS 1) . The exam typically consists of two large scenario-based questions requiring
calculations, journal entries, and disclosure notes .
200 Randomized, Scenario-Based MCQs for FAC3701 Exam
1. A company changed its inventory valuation method from FIFO to weighted average. Under
IAS 8, how should this change be accounted for?
A) Prospectively from the date of change
B) Retrospectively by restating prior period financial statements
C) As an adjustment to retained earnings without restating prior periods
D) As a prior period error corrected in the current year
Answer: B
, Page 2 of 85
RATIONALE: A change in accounting policy under IAS 8 requires retrospective application,
restating prior periods unless impracticable.
2. A company purchased a delivery vehicle for R1,060,000 on 1 March 2022. Depreciation is 25%
straight-line. The director re-estimated the useful life to 5 years. The residual value remains
R100,000. What is the carrying amount for the year ended 29 February 2024 after the change?
A) R820,000
B) R588,000
C) R700,000
D) R500,000
Answer: B
RATIONALE: The change in useful life is a change in accounting estimate under IAS 8, applied
prospectively; carrying amount at change date is depreciated over the revised remaining useful
life.
3. A company received an insurance payment of R1,520,000 for a stolen welding machine. The
carrying amount of the stolen machine was R937,500. What is the correct accounting treatment
for the profit on disposal?
A) Recognise R1,520,000 as revenue
B) Recognise R582,500 as other income in profit or loss
C) Recognise the entire amount as a deferred gain
D) Offset the insurance payment against the cost of a new machine
Answer: B
, Page 3 of 85
RATIONALE: The profit on disposal is calculated as insurance proceeds (R1,520,000) minus
carrying amount (R937,500) = R582,500, recognised in profit or loss.
4. According to the Conceptual Framework, which definition correctly describes a liability?
A) A resource controlled by the entity as a result of past events
B) A present obligation arising from past events, expected to result in outflow of resources
C) The residual interest in assets after deducting liabilities
D) An increase in assets resulting from ordinary activities
Answer: B
RATIONALE: The Conceptual Framework defines a liability as a present obligation arising from
past events, the settlement of which is expected to result in an outflow of resources.
5. A company purchased a manufacturing plant for R3,200,000 financed by a mortgage bond at
11% interest. According to the Conceptual Framework, how should the plant and bond be
classified?
A) Plant as asset, bond as equity, interest as expense
B) Plant as asset, bond as liability, interest as expense
C) Plant as equity, bond as liability, interest as expense
D) Plant as liability, bond as asset, interest as expense
Answer: B
RATIONALE: The plant meets asset definition (controlled resource), the mortgage bond meets
liability definition (present obligation), and interest meets expense definition (decrease in
equity).
, Page 4 of 85
6. Under IFRS 13, which statement regarding fair value measurement is correct?
A) Fair value is an entity-specific value, not a market-based value
B) Fair value is the price that would be received to sell an asset (exit price) in an orderly
transaction
C) Fair value includes transaction costs in the measurement
D) Fair value is the price that would be paid to acquire an asset (entry price)
Answer: B
RATIONALE: IFRS 13 defines fair value as the exit price (price to sell an asset or transfer a
liability) in an orderly transaction between market participants.
7. A company declared a cash dividend of R840,000 on 25 December 2020, payable on 31
January 2021. How should this dividend be treated in the financial statements for the year
ended 31 December 2020?
A) Recognise as a liability on 25 December 2020
B) Do not recognise a liability in 2020; disclose in the notes
C) Recognise as an expense in 2020
D) Recognise as a reduction of retained earnings in 2020 with no disclosure
Answer: B
RATIONALE: Under IAS 10, dividends declared after the reporting period are non-adjusting
events; they are not recognised as liabilities at year-end but disclosed in the notes.
8. Under IFRS 15, when should revenue from the sale of goods be recognised?
A) When the goods are ordered by the customer
