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ICAN Financial Reporting 2022 past questions and answers

This 2022 ICAN Financial Reporting set has 20 practice questions. Try these 5 free sample questions, tap a question to reveal the answer and explanation. Then practise the whole 2022 set with instant marking.

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Sample ICAN Financial Reporting 2022 questions

1. Aster Ltd has depreciated a production machine using a 10-year useful life. At the start of the current year, after reviewing its maintenance history and expected output, management revises the remaining useful life from six years to four years. The original estimate was reasonable and no error is involved. How should the change be accounted for?
  1. Apply the revised estimate prospectively to the current and future periods
  2. Restate prior years and adjust opening retained earnings
  3. Treat the change as a change in accounting policy and apply retrospectively
  4. Recognise the entire remaining carrying amount as an expense immediately

Answer: A. Apply the revised estimate prospectively to the current and future periods

A revision arising from new information about useful life is a change in accounting estimate, applied prospectively. Retrospective restatement is generally for a voluntary change in accounting policy or correction of a material prior-period error, neither of which applies here.

2. At year-end, Delta Stores holds 100 identical units. Each unit cost ₦520. It expects to sell each for ₦610, with completion costs of ₦35 and selling costs of ₦25 per unit. At what amount should the 100 units be reported?
  1. ₦55,000
  2. ₦52,000
  3. ₦61,000
  4. ₦45,000

Answer: B. ₦52,000

NRV per unit is ₦610 − ₦35 − ₦25 = ₦550, which exceeds cost of ₦520. IAS 2 measures inventory at the lower of cost and NRV, so the total is 100 × ₦520 = ₦52,000; using gross selling price would overstate inventory.

3. Kora Ltd spends money investigating several possible battery designs. On 1 July, it selects one design and can demonstrate technical feasibility, intention and ability to complete and use it, probable future benefits, adequate resources, and reliable measurement of development costs. Which treatment is appropriate?
  1. Capitalise all investigation and development expenditure incurred from the start of the project
  2. Expense research expenditure and capitalise qualifying development expenditure incurred from 1 July
  3. Capitalise investigation expenditure but expense later development expenditure
  4. Expense all expenditure because internally generated intangible assets cannot be recognised

Answer: B. Expense research expenditure and capitalise qualifying development expenditure incurred from 1 July

Research expenditure is expensed as incurred. Development expenditure is capitalised only from the date all IAS 38 recognition criteria are demonstrated, so qualifying costs from 1 July are recognised as an intangible asset; earlier research costs are not reinstated.

4. Mira Travel arranges a customer's flight with an airline. The airline controls the seat and is responsible for providing the flight; Mira never controls the flight before transfer and earns a fixed ₦8,000 commission. The customer pays Mira ₦80,000, which Mira remits to the airline less its commission. What revenue does Mira recognise?
  1. ₦80,000, because that is the amount collected from the customer
  2. ₦72,000, because that is the amount paid to the airline
  3. ₦8,000, because Mira is an agent arranging the airline's service
  4. Nil, because Mira does not provide the flight itself

Answer: C. ₦8,000, because Mira is an agent arranging the airline's service

Mira is an agent because it arranges for the airline to provide the service and does not control the flight before transfer. An agent recognises its fee or commission as revenue, not the gross customer payment or the supplier remittance.

5. A lessee signs a 10-month lease of a small, low-value office printer. It elects the IFRS 16 short-term lease recognition exemption for this class of asset. Which treatment is permitted?
  1. Recognise lease payments as an expense, generally on a straight-line basis over the lease term
  2. Recognise a right-of-use asset and lease liability for every payment
  3. Recognise only a lease liability and no right-of-use asset
  4. Defer all lease expense until the final payment date

Answer: A. Recognise lease payments as an expense, generally on a straight-line basis over the lease term

For a short-term lease, a lessee may elect the recognition exemption and recognise payments as an expense over the lease term, usually straight-line. The exemption does not defer all expense or require recognition of a liability alone.

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