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WorksheetsADVANCE 1
Total questions: 100
Worksheet time: 50mins
Step 1: Online contract — Entity M sells anti-virus subscriptions online. Customers click “Buy now”, enter card details, tick “I agree to the terms and conditions”, are charged immediately and receive a confirmation email granting access. Under IFRS 15, can this arrangement be treated as a contract with a customer?
No, because contracts entered into via a website are outside the scope of IFRS 15
No, because revenue cannot be recognised until the customer has used the software for a minimum period
No, because a contract is valid under IFRS 15 only when signed physically by both parties
Yes, because the arrangement creates enforceable rights and obligations and there is evidence of the customer’s approval
Step 1: Collectability — Entity X sells equipment for CU 800,000 to a customer with severe financial difficulties and a history of non‑payment. The goods have been delivered. Under IFRS 15, which statement best explains why X may conclude that a contract does not exist for revenue recognition purposes?
IFRS 15 automatically prohibits contracts with customers that have low credit ratings
Revenue cannot be recognised simply because the goods were delivered close to the year‑end
A contract only exists under IFRS 15 if it is collateralised by bank guarantees
If it is not probable that X will collect the consideration to which it is entitled, the arrangement fails the contract existence criteria in IFRS 15
Step 1: Commercial substance in a group transaction — Parent P “sells” a licence to internally developed software to its wholly‑owned subsidiary S for CU 10 million. Similar licences to independent customers are priced at around CU 1 million. The sale is financed by an intercompany loan from P to S, and immediately after the sale P formally forgives the loan balance. Apart from this transaction, there is no change in the amount, timing or risk of P’s cash flows. Under IFRS 15, why might P conclude that the arrangement does not give rise to revenue in its separate financial statements?
Because intra‑group transactions are eliminated on consolidation, so revenue should not be recognised in the separate financial statements
Because the transaction lacks commercial substance; it does not result in a meaningful change in the amount, timing or risk of P’s cash flows
Because licences of internally developed software are always outside the scope of IFRS 15
Because S is a related party and revenue can never be recognised from related parties
Step 1: Memorandum of Understanding (MoU) — Entity T signs an MoU with a potential customer, stating an intention to cooperate on a future ERP implementation project. The MoU does not specify the detailed scope of work, pricing or payment terms, and is not legally enforceable. Under IFRS 15, how should T treat this MoU?
T cannot treat the MoU as a contract with a customer because enforceable rights and obligations, and payment terms, have not yet been agreed
If T receives any deposit, this automatically creates a contract for IFRS 15 purposes
T can treat the MoU as a contract once it begins preliminary design work
As long as both parties have signed the MoU, IFRS 15 always treats it as a contract
Step 2: Machine plus user training — Entity A sells a machine together with a one‑day user training session. The customer could operate the machine using the user manual without attending the training. The training is scheduled a few weeks after delivery. Under IFRS 15, which statement is most appropriate?
The training is not a performance obligation because it is required to make the machine functional
The training must be combined with the machine in a single performance obligation because they are delivered under one contract
The training is an assurance‑type warranty and should be accounted for under IAS 37 instead of IFRS 15
The training is a separate performance obligation because the customer can benefit from it together with the machine and it is separately identifiable in the context of the contract
Step 2: Software licence plus support — Entity B sells a right‑to‑use software licence plus 12 months of technical support for a single fixed price. The licence provides a functional, stand‑alone version of the software and the support is routinely sold separately to customers. Under IFRS 15, how should the promised goods and services be identified?
As a single performance obligation, because the support is required for the software to be within the scope of IFRS 15
As no performance obligation, because software licences are outside the scope of IFRS 15
As two separate performance obligations: the licence and the support, because each is capable of being distinct and is separately identifiable
As a single performance obligation, because any bundle of goods and services in a contract must be accounted for together
Step 2: Turnkey contract — Entity C enters into a contract to design, build and install a highly customised wastewater treatment plant at a customer’s site. The individual tasks are highly interdependent, and Entity C provides a significant service of integrating them into a single combined output. In identifying performance obligations, how should Entity C treat the promises in the contract?
Only the construction work is a performance obligation; design and installation are pre‑contract activities
None of the promises are performance obligations because the plant is being built on the customer’s site
As a single performance obligation, because the tasks are highly interrelated and Entity C provides a significant integration service
As three separate performance obligations (design, build, install) because they are different types of tasks
Step 2 and Step 5: Customer loyalty points — Entity D operates a supermarket and grants loyalty points when customers buy goods. Each point gives the customer a discount on future purchases that is significant compared with the normal selling price. Under IFRS 15, how should these points be treated?
As part of the cost of inventory sold, with no separate identification
As a separate performance obligation, because the points give the customer a material right to future goods at a discount
As a short‑term payable, but not as part of the contract accounting
As a marketing expense recognised when the points are granted, with no impact on revenue
Step 3: Variable consideration (expected value) — Entity E enters into a consulting contract with a fixed fee of CU 400,000 plus a performance bonus of CU 80,000 if a milestone is achieved before 30 June. At contract inception, Entity E estimates a 70% probability of receiving the bonus. Entity E chooses to use the expected value method to estimate variable consideration and concludes that it is highly probable that including this estimate will not result in a significant revenue reversal. What is the transaction price at contract inception?
CU 480,000, because Entity E should use the most likely amount method
CU 440,000, as IFRS 15 requires a mid‑point estimate for variable consideration
CU 400,000
CU 456,000 (CU 400,000 + CU 80,000 × 70%)
Step 3: Early payment discount — Entity F sells goods with a list price of CU 500,000 and offers a 4% discount if customers pay within 10 days. Based on past experience, Entity F expects that customers will almost always take the discount. Under IFRS 15, what is the most appropriate transaction price at contract inception?
CU 500,000, because the list price is fixed in the contract
CU 480,000, reflecting the discount that Entity F expects customers to take
CU 500,000, with any discount recognised later as a finance cost
CU 480,000, but only once the customer actually pays within 10 days
Step 3: Significant financing component — Entity G sells equipment for CU 1.2 million, payable in a single instalment three years after delivery. The prevailing market interest rate for a similar credit arrangement is 9% per year. The payment terms give rise to a significant financing component. Under IFRS 15, how should Entity G account for the consideration?
Recognise revenue of CU 1.2 million at the date of delivery; the time value of money is ignored
Recognise revenue at the present value of CU 1.2 million at the date of delivery, and recognise the difference as interest income over three years
Recognise revenue of CU 1.2 million evenly over the three years
Recognise revenue only when the cash is collected in three years’ time
Step 3: Non-cash consideration (crypto) — Entity H designs and builds a website for a start-up in exchange for a fixed number of units of a listed cryptocurrency. Control of the service transfers to the customer over a short period, and the fair value of the cryptocurrency can be measured reliably on the date when control transfers. Under IFRS 15, how should Entity H determine the transaction price initially?
Based on the carrying amount of the costs incurred to develop the website
Based on the average of the cryptocurrency’s market price over the entire contract term
Based on the cryptocurrency’s market price at the end of the reporting period
Based on the cryptocurrency’s fair value at the date when control of the service transfers to the customer
Step 4: Allocation using stand-alone selling prices — Entity J sells a package comprising a perpetual software licence and one year of maintenance for a total price of CU 132,000. The stand-alone selling prices are CU 100,000 for the licence and CU 60,000 for the maintenance. How should Entity J allocate the transaction price?
Licence CU 82,500; maintenance CU 49,500
Licence CU 66,000; maintenance CU 66,000
Licence CU 132,000; maintenance CU 0
Licence CU 100,000; maintenance CU 32,000
Step 4: Estimating stand-alone selling price (cost-plus) — Entity K sells a machine plus a three-year maintenance service for a total contract price of CU 400,000. The machine has a stand-alone selling price of CU 350,000. The maintenance service is not sold separately, but expected costs are CU 30,000 per year and Entity K normally applies a 25% margin to similar services. Under IFRS 15, how should Entity K determine the allocation of the transaction price?
Recognise revenue for the machine only; recognise the maintenance as an expense when costs are incurred
Allocate CU 200,000 to the machine and CU 200,000 to the maintenance, because there are two promised goods/services
Estimate the stand-alone selling price of the maintenance using a cost-plus approach, then allocate CU 400,000 between the machine and the maintenance based on relative stand-alone selling prices
Allocate the entire CU 400,000 to the machine because its stand-alone selling price is known
Step 4: Faithful representation and bias — A company sells a machine together with a long-term maintenance contract. To reduce current-period revenue and “smooth” profits, management deliberately allocates most of the transaction price to the maintenance service, even though this allocation does not reflect the relative stand-alone selling prices. Which statement best reflects IFRS 15?
This is acceptable if the auditor agrees with the allocation and documents the judgement
This is acceptable as long as the allocation does not reduce taxable income
This is acceptable if the customer agrees to the allocation in the contract
This is not acceptable because the allocation does not faithfully represent the substance of the transaction and is biased
Step 5: Subscription service — over time — Entity L sells 12-month access to an online learning platform. Customers pay the full subscription fee in advance, and Entity L’s performance obligation is to provide access throughout the 12-month period. Under IFRS 15, how should revenue be recognised?
Recognise revenue only at the end of the 12-month period
Recognise revenue over time, typically on a straight-line basis over the 12 months
Recognise all revenue when the cash is received at the start of the subscription
Recognise revenue when the customer first logs in to the platform
Step 5: Construction on customer’s land — over time — Entity M constructs a factory building on land owned by a customer. The building has no alternative use to Entity M, and the contract gives Entity M an enforceable right to payment for performance completed to date if the customer cancels the contract. Under IFRS 15, how should Entity M recognise revenue?
Recognise revenue at a point in time when the building is completed and handed over
Recognise revenue over time by measuring progress towards completion, for example using a cost-to-cost method
Recognise revenue only when the customer has paid the full contract price
Do not recognise revenue because the building is located on the customer’s land
Step 5: Consignment arrangement — Entity N ships goods to a dealer under a consignment arrangement. Legal title and the majority of risks and rewards remain with Entity N until the dealer sells the goods to an end customer. The dealer may return unsold goods to Entity N. Under IFRS 15, when should Entity N recognise revenue?
As soon as the dealer obtains the right to return unsold goods to Entity N
When the dealer sells the goods to an end customer, because control of the goods passes to a customer at that point
When the dealer signs a goods receipt note acknowledging physical delivery
When the goods leave Entity N’s warehouse and are delivered to the dealer
Step 5: Bill-and-hold — Entity O manufactures specialised equipment for a customer. At the customer’s request, Entity O invoices the customer but retains physical possession of the equipment for several months because the customer’s warehouse is not yet ready. The equipment is identified separately as belonging to the customer, is ready for physical transfer, cannot be redirected to another customer, and the customer has an unconditional right to call for delivery at any time. When may Entity O recognise revenue under IFRS 15?
Only when the equipment is physically delivered to the customer’s warehouse
Never, because physical possession is a necessary condition for control
When the customer pays the invoice, regardless of other conditions
When the bill-and-hold criteria in IFRS 15 are met and control of the equipment has transferred to the customer, even though physical possession remains with Entity O
Step 5: Installation and testing are critical
Entity P sells a production line that must be installed and tested by Entity P before it can operate as intended by the customer. Entity P delivers the equipment to the customer’s site near year-end but has not yet performed the installation or testing. Under IFRS 15, how should Entity P treat revenue from this contract at the reporting date?
Entity P should not recognise revenue for the production line until the installation and testing – which are critical to the customer’s ability to obtain control and use the asset as intended – have been completed
Entity P may recognise the full contract price as revenue when the equipment arrives at the customer’s site, because the physical risks of ownership have transferred
Entity P must always recognise revenue from such contracts over time, irrespective of the contract terms and facts
Entity P may recognise revenue equal to the cost of the equipment on delivery and recognise the remaining margin after installation and testing
IFRS 15: Specific Arrangements (Right of return)
An entity sells goods with a 30-day right of return (for reasons other than defects). Under IFRS 15, at the time of sale the entity should:
Recognise revenue in full and recognise an expense when returns occur
Recognise revenue for goods not expected to be returned, recognise a refund liability, and recognise an asset for the right to recover products
Recognise no revenue until the return period ends
Recognise revenue net of returns but never recognise any liability
A start-up retailer offers a right of return but has no history and cannot reasonably estimate returns. Returns are expected to be highly volatile. Which approach is most consistent with IFRS 15?
Always recognise revenue in full because the customer paid
Recognise revenue only after management approves a return estimate
Recognise revenue and record no refund liability until returns exist
Apply the constraint on variable consideration and recognise revenue only to the extent it is highly probable there will be no significant reversal (possibly very little/none initially)
(Right of return—measurement of return asset)
The “asset for the right to recover products from customers” is initially measured at:
The former carrying amount of inventory (adjusted for expected recovery costs and any expected reduction in value)
The forecast selling price of returned goods
The contract selling price of the goods
Fair value less costs to sell
(Right of return vs defective goods)
A customer may return goods only if defective. Which statement is most appropriate under IFRS 15?
This is a right of return; recognise a refund liability
This creates a separate performance obligation
This is generally an assurance-type warranty situation (not a right of return for convenience)
Revenue must be deferred until the warranty period ends
(Right of return—concept test)
Which statement best describes IFRS 15’s view of a general right of return?
It is a form of variable consideration, not a separate performance obligation
It is always a separate performance obligation
It is always accounted for under IAS 37
It automatically prevents contract existence
(Repurchase—financing arrangement)
Entity A “sells” equipment for CU 1,000,000 and simultaneously enters a forward to repurchase it after 2 years for CU 1,150,000. Under IFRS 15, this arrangement is most likely:
Two separate contracts (sale + derivative) with revenue at sale date
A financing arrangement (customer does not obtain control)
A sale with a right of return
A lease
(Repurchase—lease)
Updated for precision: Entity B sells equipment for CU 1,000,000 and retains a call option to repurchase it after 3 years for CU 800,000. The expected market value at that time is CU 1,200,000. Because the repurchase price is lower than the original selling price, this arrangement is most likely:
A lease (customer obtains the right to use, while control does not fully transfer)
A completed sale (control transfers)
A sale with a right of return
A financing arrangement
(Repurchase—put option, customer incentive)
Updated for precision: Entity C sells an asset for CU 1,000,000 and grants the customer a put option to sell it back for CU 1,100,000 (which is higher than the expected market value of CU 900,000 at the option date). The customer has a significant economic incentive to exercise the put. This is most likely:
A financing arrangement
A bill‑and‑hold sale
A consignment arrangement
A normal sale
(Repurchase—put option, no incentive)
Updated for precision: Entity D sells an asset for CU 1,000,000 and grants a put option at a repurchase price of CU 800,000 (which is lower than the expected market value of CU 900,000). The customer has no significant economic incentive to exercise the put option. This arrangement is most likely:
A financing arrangement
A lease
Not a contract under IFRS 15
A sale with a right of return (i.e., treat like variable consideration/returns-style accounting)
Which statement is most accurate about repurchase agreements (forward/call) in IFRS 15?
Control always transfers on delivery because legal title transfer
Repurchase agreements are always accounted for as derivatives under IFRS 9
Control always transfers because the customer can physically use the asset
The customer generally does not obtain control if the entity has an obligation/right to repurchase; classification depends on repurchase pricing (lease vs financing)
(Bill-and-hold—criteria)
Revenue may be recognised in a bill-and-hold arrangement only if:
The customer has paid and legal title transferred
The customer signed the invoice and the goods are insured
The reason for bill-and-hold is substantive, the goods are separately identified, the goods are ready for physical transfer, and the entity cannot redirect the goods
The goods remain in the entity’s warehouse for less than 30 days
Entity E invoices a customer for goods, identifies them as the customer’s goods, but final testing is incomplete. Under IFRS 15, revenue recognition is:
Appropriate if the customer paid
Not appropriate because the goods are not ready for physical transfer
Appropriate if legal title transferred
Appropriate because billing occurred
In a bill-and-hold request, the seller can still substitute the goods and deliver the same product to another customer if needed. Under IFRS 15, this most likely means:
Revenue must be recognised because risks have transferred
The bill-and-hold criteria are not met because the seller can redirect the goods
Revenue must be split 50/50 between delivery and storage
The arrangement is automatically a consignment
Entity F sells goods and, at the customer’s request, stores them for 6 months. Storage is separately priced and represents a distinct service that can be provided by other warehousing companies. Under IFRS 15, the best view is:
Storage is never a performance obligation
Storage is a warranty
There are two performance obligations; recognise goods revenue when control transfers and recognise storage revenue over time
Storage is always included in the sale of goods
Under a consignment arrangement, Entity G ships goods to a dealer; the dealer may return unsold goods and does not have an unconditional obligation to pay. Revenue should be recognised:
When the end customer places an order
When the dealer signs the delivery note
When the dealer sells the goods to an end customer
On shipment to the dealer
Which combination most strongly indicates a consignment arrangement (not a sale to the dealer)?
Dealer pays upfront and earns a fixed commission
Entity controls the goods until a specified event (sale to end customer); dealer can return goods; dealer has no unconditional obligation to pay
Dealer sets its own price and bears all inventory risk
Legal title transfers to dealer; dealer cannot return; dealer must pay within 30 days
Entity H has transferred goods/services and satisfied its performance obligation, but cannot issue an invoice until the customer signs a non-substantive acceptance certificate. Prior to signature, the right to consideration is conditional. How should Entity H present the right to consideration?
As a contract asset (right to consideration is still conditional on something other than the passage of time)
As a receivable
As inventory
As revenue (already earned) with no asset
Entity I receives payment in advance for a 12-month subscription service. At receipt of cash, Entity I should recognise:
Revenue immediately because cash was received
A contract liability, then recognise revenue over time as the service is provided
An expense because it relates to future periods
A receivable because invoice is issued
Which disclosure is generally required about remaining performance obligations (subject to practical expedients)?
Only cash collected from customers
The aggregate transaction price allocated to remaining performance obligations and when the entity expects to recognise it as revenue
Only segment information
Only total contract liabilities at year-end
The main objective of disaggregating revenue disclosures in IFRS 15 is to:
Depict how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows
Match revenue with tax reporting categories
Avoid providing information about performance obligations
Reduce volatility in reported revenue
Under IFRS 16, a lessee is required to recognise a lease when:
The lease term exceeds 12 months
Ownership of the asset transfers at the end of the lease
The contract value exceeds USD 100,000
The lessee has the right to control the use of the asset during the lease term
The asset recognised by the lessee on the balance sheet under IFRS 16 is called:
Deferred asset
Leasehold property
Right-of-use asset
Operating asset
The liability recognised by the lessee at the lease commencement date is called:
Operating lease payable
Lease liability
Accrued lease cost
Deferred lease obligation
In which case is a lessee exempt from recognizing a right‑of‑use asset and lease liability under IFRS 16?
When leasing an asset with a high value
When the lease is short‑term or the asset is of low value
When leasing an intangible asset
When the lessor is a not‑for‑profit entity
Depreciation of the right‑of‑use asset for a lessee is recognized as:
Operating expense
Finance cost
Deferred tax expense
Reduction in retained earnings
Under IFRS 16, the interest expense related to the lease liability is:
Reported under investing activities in the cash flow statement
Recognized as a finance cost in the income statement
Classified as accrued expenses on the balance sheet
Capitalized into the right‑of‑use asset
At initial recognition, the value of the right‑of‑use asset is generally based on:
The present value of lease payments
The purchase price paid by the lessor
The cost of transportation and installation
The fair value of the leased asset
A contract qualifies as a lease under IFRS 16 only if:
The lessor is a commercial entity
It contains an identified asset and the lessee has the right to control its use
The lease term is more than 12 months
The lease payments exceed a materiality threshold
Control of the use of an asset exists for the lessee when the lessee:
Can decide who maintains the asset
Has the right to redesign the asset
Can direct how and for what purpose the asset is used
Signs a purchase option contract
Failure to recognize a right‑of‑use asset and lease liability will:
Increase non‑current assets
Increase equity
Understate both total assets and liabilities
Increase finance costs
A lessee enters into a 3‑year lease with annual payments of $10,000 payable at year‑end. The implicit rate is 5%. What is the present value of the lease liability at inception (rounded)?
$28,610
$27,290
$30,000
$25,000
Using the result from the 3‑year lease PV of $28,610, which is the correct journal entry at lease commencement?
Dr Right‑of‑use asset 30,000/CrLeaseliability 30,000
Dr Lease expense 10,000/CrCash 10,000
Dr Right‑of‑use asset 28,610/CrLeaseliability 28,610
Dr Equipment 28,610/CrLeasepayable 28,610
For the lease with opening liability $28,610 at 5%, what is the Year 1 interest expense before rounding?
$1,430
$1,000
$1,500
$2,000
If there is no residual value, depreciation of the right‑of‑use asset is calculated using:
The fair value of the asset
Revaluation model at each reporting date
Using total lease payments
Present value of lease payments : lease term
After the commencement date, how is the lease liability measured (excluding modifications):
Increased by interest and reduced by lease payments
Revalued to fair value
Written off evenly
Remains unchanged
Following initial recognition, the right‑of‑use asset is:
Revalued annually
Depreciated over lease term with impairment
Held at original value
Adjusted for changes in discount rate
A 5‑year lease has $20,000 annual payments and a 6% discount rate. What is the present value of the lease liability?
$100,000
$84,220
$94,160
$105,000
First lease payment at end of Year 1 (from Q17). What is the correct journal entry?
Dr Lease liability 20,000/CrCash 20,000
Dr Lease liability 15,000/DrInterest 5,000 / Cr Cash $20,000
Dr Depreciation 16,844/CrAccumulateddepreciation 16,844
Dr Interest 5,053/DrLeaseliability 14,947 / Cr Cash $20,000
Which income statement items are directly affected each year for a lessee under IFRS 16?
Rent expense and cost of goods sold
Interest and depreciation
Operating profit and other income
Finance cost and lease revenue
When should the right‑of‑use asset be depreciated over the lease term rather than the asset’s useful life?
When fair value is not known
When ownership is not expected to transfer
Always under IFRS 16
When there's a purchase option
Under IFRS 16, how does a lessor classify leases?
Operating lease and finance lease
Short-term lease and long-term lease
Simple lease and complex lease
Sales lease and purchase lease
A lease is classified as a finance lease by the lessor when:
The lease term is less than 12 months
The leased asset is intangible
Substantially all risks and rewards of ownership are transferred to the lessee
The lessor retains significant risks related to the asset
Under an operating lease, how does the lessor account for the leased asset?
Derecognizes the asset from the balance sheet
Recognizes a lease receivable
Keeps the asset on the balance sheet and depreciates it
Reclassifies the asset as investment property
Which of the following is not a characteristic of a finance lease from the lessor's perspective?
Ownership transfers to lessee at end of lease
Lease term covers the major part of the asset's economic life
Present value of lease payments approximates fair value
Lessor retains significant risks of ownership
Under a finance lease, what does the lessor recognize at the lease commencement date?
Operating income
Deferred revenue
Right-of-use asset
Lease receivable equal to the net investment in the lease
In an operating lease, lease income is typically recognized by the lessor:
At the start of the lease
At fair value of the leased asset
When lease payments are received
On a straight-line basis over the lease term
Which of the following is included in the lessor’s balance sheet under a finance lease?
Right-of-use asset
Unearned income
Lease receivable
Deferred tax asset
How does a lessor depreciate a leased asset under an operating lease?
Based on total lease payments
Using the lease term
Over its useful life
It is not depreciated
Which of the following would reduce the lease receivable balance during the lease term in a finance lease?
Interest income
Revaluation of the asset
Cash received from lessee
Accrued rent expense
When is a leased asset derecognized from the lessor’s balance sheet?
On the lease commencement date for a finance lease
When impairment is recognized
When the asset is revalued
At the end of the lease term
A lessor enters a finance lease with a fair value of 120,000 and expected lease payment of 25,000 annually for 5 years. The discount rate is 6%. What is the net investment in the lease at inception (rounded)?
$100,000
$120,000
$105,105
$125,000
In a finance lease, which journal entry does the lessor make at the commencement date?
Dr Lease liability / Cr Right-of-use asset
Dr Cash / Cr Revenue
Dr Unearned revenue / Cr Lease income
Dr Lease receivable / Cr Equipment
A lessor receives a lease payment of 25,000 under a finance lease. At the date of payment, interest income of 6,000 has not yet been accrued. What amount should reduce the lease receivable?
$6,000
$19,000
$31,000
$25,000
What is the lessor’s typical income statement impact in a finance lease?
Rent income only
Interest income only
Interest income and cost of goods sold (if applicable)
Interest income and lease receivable revaluation
Under an operating lease, how does the lessor calculate depreciation of the leased asset?
Using fair value model
Over the lease term using lease revenue
Based on the asset’s useful life and cost
Based on the present value of lease payments
What is the effect on the balance sheet of the lessor at lease commencement in a finance lease?
Right-of-use asset is recognized
Operating lease liability is recorded
No change to total assets or liabilities
Lease receivable increases, asset derecognized
In a finance lease, what component of the lease payment generates income for the lessor over time?
Lease incentives
Interest income
Service income
Depreciation
What is the net impact on the income statement if a lessor earns 10,000 lease income and records 10,000 lease income and records 6,000 depreciation in an operating lease?
Profit before tax decreases by $6,000
Profit before tax increases by $10,000
Profit before tax increases by $4,000
No impact until the lease ends
Under a finance lease, which income item does a lessor typically recognize each year in the income statement?
Dividend income
Deferred revenue
Interest income
Rental income
In a finance lease, what happens to the leased asset on the lessor’s balance sheet at lease commencement?
It is depreciated over the lease term
It is derecognized and replaced by a lease receivable
It is transferred to right-of-use asset
It is revalued and retained on the balance sheet
Ancord Ltd purchased a plot of land for investment purposes at a cost of $8 million on 1 July 20X8. On 30 June 20X10, the land was revalued at $10 million. The company uses the fair value model. What is the impact on profit or loss?
Do not recognize any gain
Recognize a gain of $2 million in the income statement
Record a $2 million gain in OCI
Continue carrying the land at $8 million
Ancord Ltd bought a building for 8 million, of which 5 million is land and $3 million is the building. The company uses the cost model and depreciates the building over 50 years, straight-line, with zero residual value. What is the carrying amount on 30 June 20X10?
$7.50 million
$7.80 million
$8.00 million
$7.88 million
A property purchased for $12 million on 1 January 20X6 was reclassified as investment property on 30 June 20X20. Fair value on 30 June: $13.5 million; on 31 December: $14.0 million. Fair value model is applied. What gain is recognized in 20X20?
$2.0 million
No gain
$0.5 million
$1.5 million
A property purchased for $8 million (land: $5 million; building: $3 million), depreciated over 50 years using cost model, was sold for $9.5 million after 2 years. What is the gain on disposal?
$0.50 million
$1.62 million
$1.50 million
$1.38 million
Which of the following qualifies as investment property?
Factory used in manufacturing
Land held for capital appreciation
Warehouse for storing inventory
Building for company operations
How is investment property initially measured?
At net realizable value
At present value of rental income
At market value on acquisition date
At cost, including directly attributable costs
When should owner-occupied property be reclassified as investment property?
When used to earn rental income
When lease agreement is signed
At the start of the year
At year-end
What must be disclosed when using the cost model for investment property?
List of tenants and leases
Historical market values
Rental yield of the asset
Fair value if measurable reliably
How is an increase in fair value of investment property recognized under the fair value model?
Not recognized
In profit or loss
Deferred in equity
Through OCI
How is depreciation treated under the cost model?
Not required
Based on market value
Straight-line over useful life
Based on rental income pattern
How is a gain on disposal of investment property treated?
Reported in OCI
Deducted from revaluation surplus
Recognized in profit or loss
Ignored if not material
Which model recognizes upward revaluations in OCI?
Fair value model under IAS 40
Revaluation model under IAS 16
Cost model under IAS 16
Both models
Which model requires depreciation after revaluation?
Revaluation model under IAS 16
Fair value model under IAS 40
Both models
Neither model
What happens to the revaluation surplus when PPE is derecognized?
Transferred to profit or loss
Reversed through OCI
Remains in equity as retained earnings
Revalued again
Under IAS 40 fair value model, is depreciation required?
Yes, based on fair value
Yes, but offset by revaluation
No depreciation is recognized
Depreciation is recorded in OCI
How are downward fair value changes under IAS 40 treated?
OCI
Revaluation reserve
Profit or loss
Retrospective restatement
How do increases in asset value affect equity differently under IAS 16 and IAS 40?
IAS 16: OCI; IAS 40: Profit or loss
IAS 16: Profit; IAS 40: OCI
Both in OCI
Both in equity
Which model allows revaluation gains without affecting profit or loss?
Fair value model under IAS 40
Revaluation model under IAS 16
Cost model under IAS 40
None
Are fair value gains under IAS 40 recorded as revaluation surplus?
Yes, same as IAS 16
No, recorded in OCI
No, recorded in profit or loss
Yes, under retained earnings
What best summarizes the key difference in treatment of fair value gains between IAS 16 and IAS 40?
IAS 16: OCI with depreciation; IAS 40: Profit or loss without depreciation
Both models use OCI
IAS 16 uses cost model only
IAS 40 applies revaluation surplus
