Adv I MCQs

1. Which of the following statements is true regarding deferred tax liabilities?

A. They arise when taxable income is greater than accounting income
B. They are recorded as an asset on the balance sheet
C. They result in future tax savings for a company
D. They are recognized when tax deductions exceed expenses recognized for financial
reporting purpose
2. When a company records a deferred tax liability, it indicates that:
A. The company will owe less taxes in the future than it does currently
B. The company will owe more taxes in the future than it does currently
C. The company will not owe any taxes in the future
D. The company's tax liability will remain the same in the future
3. Which of the following is not a temporary difference that creates deferred tax assets or
liabilities?
A. Depreciation expense
B. Interest income
C. Bad debt expense
D. Prepaid expenses
4. How are deferred tax liabilities and assets reported on the balance sheet?
A. Deferred tax liabilities are reported as current liabilities, and deferred tax assets are
reported as current assets.
B. Deferred tax liabilities are reported as current assets, and deferred tax assets are
reported as current liabilities.
C. Deferred tax liabilities are reported as non-current liabilities, and deferred tax assets
are reported as non-current assets.
D. Deferred tax liabilities are reported as non-current assets, and deferred tax assets are
reported as non-current liabilities.
5. What is the main difference between temporary differences and permanent differences in
accounting for income taxes?
A. Permanent differences will reverse in the future, while temporary differences will not.
B. Temporary differences affect both financial and tax reporting, while permanent
differences only affect financial reporting.
C. Temporary differences result from timing issues, while permanent differences result
from differences in the tax law.
D. Temporary differences are only relevant for small businesses, while permanent
differences apply to all companies.
6. Which financial statement(s) must include information about income taxes?
A. Only the income statement
B. Only the balance sheet
C. Both the income statement and balance sheet
 D. Neither the income statement nor the balance sheet
7. Profit for a period, determined in accordance with the rules established by the taxation
authorities is:
A. Taxable profit
B. Accounting profit
C. Tax expense
D. Current tax
8. A machine with cost of 1000. For tax purposes, depreciation of 300 has already been
deducted in the current and prior periods and the remaining cost will be deductible in future
periods, either as depreciation or through a deduction on disposal. The tax base of machine
is:
A. 1000
B. 700
C. 1300
D. 300
9. An asset that costs 10000 has cumulative depreciation for tax purposes is 6000 and the tax
rate is 15%. The asset has a carrying amount of 5000. The entity recognizes:
A. Deferred tax liability of 150
B. Deferred tax asset of 150
C. Deductible temporary difference of 1000
D. Deferred tax liability of 1000
10. Assume corporate tax rate is 30%. Entity A determines for the year ended 31 December
2022: taxable income before uncertain item to be birr 100,000 and 40% probability that a
further birr 10,000 gain is taxable. As per IFRSs entity A’s current tax expense for 2022
is?
A. 12,000
B. 30,000
C. 31,200
D. 34,200
11. Which statement regarding Net Operating Loss (NOL) is true?
A. NOLs are created when a taxpayer’s income exceed deductions
B. All deductions are allowed in computing the NOL
C. NOL can be used to reduce taxable income in the next year
D. A taxpayer with NOL in 2023 can use it to reduce taxable income in 2017
12. What is share-based compensation under IFRS 2?
A. Compensation paid in the form of shares of the company
B. Compensation paid exclusively in cash
C. Compensation paid only to top executives
D. Compensation paid in physical assets
13. How are share-based compensation expenses measured under IFRS 2?
 A. At the fair value of the company's stock
B. At the fair value of the goods or services received
C. At the historical cost of the company's stock
D. At the market price of the company's stock
14. What is the fair value measurement date for equity-settled share-based payment
transactions under IFRS 2?
A. Vesting date
B. Grant date
C. Exercise date
D. Settlement date
15. How does IFRS 2 define the vesting period?
A. Date on which authorized by the Committee
B. The period during which employees earn the right to receive shares
C. The period during which shares can be sold on the open market
D. The period during which employees are paid in shares
16. How should share-based payment transactions with employees be disclosed under IFRS 2?
A. In the footnotes to the financial statements
B. In the income statement only
C. In a separate report to shareholders
D. In the management discussion and analysis section
17. For cash settled share based payments the entity recognizes its transactions in statement of
financial position as:
A. Equity
B. Liability
C. Equity or liability
D. Income
18. ABC Company has granted 100 share appreciation rights to each of its 200 employees on
1 July 2005. The management feel that 90% of employees will stay and the awards will
vest on 31 July 2007. The fair value of each share appreciation right on 31 July 2006 is
Birr 50. What is the fair value of the liability to be recorded in the financial statements for
the year ended 31 July 2006?
A. 900,000
B. 450,000
C. 300,000
D. 9,0000
19. Entity X grants 50 shares each to its 500 employees. Fair value at grant date is Birr 100.
Employees will give a service for three years and expected for vesting right by 1st year
97%, then it revises to 95% by 2nd year and finally to 90% by 3rd year. What is the expense
in Year -1 in respect of share-based payment?
A. 2,425,000
 B. 2,500,000
C. 808,333
D. 791,666.67
20. IAS 41 is applied to agricultural produce:
A. Before the harvest.
B. Only at the point of harvest.
C. After the harvest.
D. Before, during and after the harvest
21. Which of the following statements regarding agricultural assets is true?
A. Agricultural assets are typically held for resale
B. Agricultural assets are not subject to biological transformation
C. Agricultural assets are measured at fair value less costs to sell
D. Agricultural assets are not subject to impairment testing
22. Which of the following is not an example of a biological asset?
A. Livestock
B. Trees in a timber plantation
C. Harvested crops
D. Mineral rights
23. Which of the following is an example of agricultural produce under IAS 41?
A. Unharvested crops
B. Machinery used for planting
C. Fertilizers
D. Livestock
24. How is the fair value of biological assets determined under IAS 41?
A. Based on management's estimates
B. Based on observable market prices
C. Based on historical cost
D. Based on net realizable value
25. Which one of the following is an example of biological asset?
A. Carcass
B. Milk
C. Sugar
D. Palm tree
26. Agricultural activity includes all of the following except:
A. Raising livestock
B. Forestry
C. Floriculture
D. Ocean fishing
27. According to IAS 41, biological assets are initially measured by:
A. Fair value less cost to sell
 B. Historical cost
C. Net realizable value
D. Market value at the end of the reporting period
28. How are changes in fair value of biological assets recognized under IAS 41?
A. In balance sheet
B. In profit or loss
C. In equity
D. Nowhere
29. XYZ Co. grows strawberries on its farm. During a specific period, XYZ Co. acquires 500
strawberry plants at a cost of $10 per plant. Additionally, transportation expenses amount
to $2 per plant. The fair value of the strawberry plants is $4,500, while the selling expense
is $500. What is the recognized loss on the biological asset?
A. $1,000
B. $1,500
C. $2,000
D. $2,500
30. A business entity applies IFRS 17, insurance contracts, in which of the following?
A. Contingent consideration receivable in business combination
B. Product warranties issued by an entity which is manufacturer
C. Employers' asset and liabilities under employment benefit plans
D. Reinsurance contracts issued by the entity
31. What is the Contractual Service Margin (CSM) in the context of insurance contracts under
IFRS 17?
A. The initial premium paid by the policyholder
B. The present value of future cash flows from the insurance contract
C. The unearned profit that insurers recognize over the coverage period
D. The administrative fees charged by the insurer
32. Which accounting standard governs the recognition and measurement of insurance
contracts?
A. IFRS 4
B. IFRS 17
C. IAS 19
D. IFRS 9
33. Under IFRS 17, insurance contract liabilities are measured as the:
A. Present value of expected cash inflows
B. Present value of expected cash outflows
C. Expected value of future claims
D. Gross premium income
34. The liability for the remaining coverage period of an insurance contract is known as:
A. Unearned premium
 B. Earned premium
C. Policyholder's equity
D. Loss reserve
35. Which of the following is NOT a method of accounting for insurance contracts?
A. General measurement model
B. Building block approach
C. Premium recognition model
D. Variable fee approach
36. Which of the following is a feature of a reinsurance contract?
A. Balancing risks with third parties
B. Direct coverage to policyholders
C. Elimination of underwriting risk
D. Exclusion of catastrophic events
37. Lion insurance company signs a contract with a policyholder for a one-year car insurance
policy. The policy covers the policyholder for up to Birr 50,000 in damages and costs Birr
1,000 per year in premiums. The company estimates that there is a 12% chance of a Birr
50,000 loss. What is the estimated liability of a company during the year?
A. Br. 5000
B. Br. 6000
C. Br. 6120
D. Br. 7000