‘ACCT5312 EXAM QUESTIONS AND ANSWERS
(PRACTICE QUESTIONS) WITH SOLUTIONS LATEST
SECTION I: CONCEPTUAL FRAMEWORK & FINANCIAL REPORTING (Questions 1-
10)
Q1. Under SFAC No. 8, which fundamental qualitative characteristic requires
information to be complete, neutral, and free from error?
A) Relevance
B) Faithful representation
C) Comparability
D) Verifiability
Correct Answer: B) Faithful representation
Rationale: Faithful representation means information accurately reflects
economic phenomena, including completeness, neutrality, and freedom from
material error. Relevance is the other fundamental characteristic but requires
predictive or confirmatory value .
Q2. Which of the following are enhancing qualitative characteristics? (Select all
that apply)
☐ Relevance
☐ Comparability
☐ Timeliness
☐ Understandability
Correct Answer: Comparability, Timeliness, Understandability
,Rationale: The enhancing qualitative characteristics are comparability, verifiability,
timeliness, and understandability. These distinguish useful information from
merely relevant and faithfully represented information. Relevance is a
fundamental characteristic, not an enhancing one .
Q3. Which of the following is NOT a component of other comprehensive income
(OCI)?
A) Unrealized gains/losses on available-for-sale debt securities
B) Foreign currency translation adjustments
C) Dividends paid to shareholders
D) Actuarial gains/losses on defined benefit pension plans
Correct Answer: C) Dividends paid to shareholders
Rationale: Dividends are distributions to owners and are recorded as a reduction
to retained earnings, not as OCI. OCI items bypass net income but affect
accumulated other comprehensive income in equity .
Q4. Under IFRS, the statement of profit or loss and other comprehensive income
may be presented as:
A) One single statement only
B) Two separate statements only
C) Either one or two statements
D) Only as a combined statement with the balance sheet
Correct Answer: C) Either one or two statements
Rationale: IFRS allows presentation of profit or loss and OCI in either a single
continuous statement (the statement of profit or loss and other comprehensive
income) or two separate statements (an income statement followed by a separate
OCI statement) .
, Q5. A company reports 500,000revenue,500,000revenue,300,000
expenses, 20,000lossonsaleofequipment,and20,000lossonsaleofequipment,and1
0,000 gain from discontinued operations. What is net income?
A) 190,000B)190,000B)200,000
C) 210,000D)210,000D)180,000
Correct Answer: A) $190,000
Rationale: Net income = (500,000−500,000−300,000 - 20,000)+20,000)+10,000 =
$190,000. The loss on sale of equipment is included in income from continuing
operations, while discontinued operations are presented separately net of tax .
Q6. Which of the following is not a component of other comprehensive income
under US GAAP?
A) Unrealized holding gains on available-for-sale debt securities
B) Foreign currency translation adjustments
C) Cash dividends declared
D) Pension liability adjustments
Correct Answer: C) Cash dividends declared
Rationale: Dividends are distributions to shareholders. Under ASC 220, OCI
includes foreign currency items, pension adjustments, unrealized gains/losses on
certain securities, and effective portion of cash flow hedges .
Q7. When a company changes inventory method from LIFO to FIFO, the
cumulative effect before tax is $300,000. Tax rate 25%. How is this reported?
A) As an adjustment to beginning retained earnings of $225,000 net of tax
B) As an extraordinary gain on income statement
C) As a change in estimate prospectively
D) As a component of OCI
(PRACTICE QUESTIONS) WITH SOLUTIONS LATEST
SECTION I: CONCEPTUAL FRAMEWORK & FINANCIAL REPORTING (Questions 1-
10)
Q1. Under SFAC No. 8, which fundamental qualitative characteristic requires
information to be complete, neutral, and free from error?
A) Relevance
B) Faithful representation
C) Comparability
D) Verifiability
Correct Answer: B) Faithful representation
Rationale: Faithful representation means information accurately reflects
economic phenomena, including completeness, neutrality, and freedom from
material error. Relevance is the other fundamental characteristic but requires
predictive or confirmatory value .
Q2. Which of the following are enhancing qualitative characteristics? (Select all
that apply)
☐ Relevance
☐ Comparability
☐ Timeliness
☐ Understandability
Correct Answer: Comparability, Timeliness, Understandability
,Rationale: The enhancing qualitative characteristics are comparability, verifiability,
timeliness, and understandability. These distinguish useful information from
merely relevant and faithfully represented information. Relevance is a
fundamental characteristic, not an enhancing one .
Q3. Which of the following is NOT a component of other comprehensive income
(OCI)?
A) Unrealized gains/losses on available-for-sale debt securities
B) Foreign currency translation adjustments
C) Dividends paid to shareholders
D) Actuarial gains/losses on defined benefit pension plans
Correct Answer: C) Dividends paid to shareholders
Rationale: Dividends are distributions to owners and are recorded as a reduction
to retained earnings, not as OCI. OCI items bypass net income but affect
accumulated other comprehensive income in equity .
Q4. Under IFRS, the statement of profit or loss and other comprehensive income
may be presented as:
A) One single statement only
B) Two separate statements only
C) Either one or two statements
D) Only as a combined statement with the balance sheet
Correct Answer: C) Either one or two statements
Rationale: IFRS allows presentation of profit or loss and OCI in either a single
continuous statement (the statement of profit or loss and other comprehensive
income) or two separate statements (an income statement followed by a separate
OCI statement) .
, Q5. A company reports 500,000revenue,500,000revenue,300,000
expenses, 20,000lossonsaleofequipment,and20,000lossonsaleofequipment,and1
0,000 gain from discontinued operations. What is net income?
A) 190,000B)190,000B)200,000
C) 210,000D)210,000D)180,000
Correct Answer: A) $190,000
Rationale: Net income = (500,000−500,000−300,000 - 20,000)+20,000)+10,000 =
$190,000. The loss on sale of equipment is included in income from continuing
operations, while discontinued operations are presented separately net of tax .
Q6. Which of the following is not a component of other comprehensive income
under US GAAP?
A) Unrealized holding gains on available-for-sale debt securities
B) Foreign currency translation adjustments
C) Cash dividends declared
D) Pension liability adjustments
Correct Answer: C) Cash dividends declared
Rationale: Dividends are distributions to shareholders. Under ASC 220, OCI
includes foreign currency items, pension adjustments, unrealized gains/losses on
certain securities, and effective portion of cash flow hedges .
Q7. When a company changes inventory method from LIFO to FIFO, the
cumulative effect before tax is $300,000. Tax rate 25%. How is this reported?
A) As an adjustment to beginning retained earnings of $225,000 net of tax
B) As an extraordinary gain on income statement
C) As a change in estimate prospectively
D) As a component of OCI
