Free CIMA F1 Financial Reporting Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CIMA F1 Financial Reporting practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1Which standard-setting body is responsible for developing IFRS Accounting Standards?

   1. A.International Sustainability Standards Board
   2. B.International Accounting Standards BoardCorrect answer: B
   3. C.International Organisation of Securities Commissions
   4. D.IFRS Advisory Council

   Explanation: The source states: "IFRS Accounting Standards are developed by the International Accounting Standards Board (IASB)." The IASB is the accounting standard setter. The ISSB sets sustainability disclosure standards; IOSCO represents securities regulators; the Advisory Council provides advice.

   Reference: IFRS Foundation — International Accounting Standards Board — IFRS Accounting overview

2. 2Which feature is essential to the Conceptual Framework's definition of an asset?

   1. A.A guaranteed future cash receipt
   2. B.A present economic resource controlled by the entityCorrect answer: B
   3. C.A legally owned physical object
   4. D.A resource created by a future transaction

   Explanation: The source states: "A present economic resource controlled by the entity as a result of past events" Control over a present economic resource arising from past events is central. Guaranteed cash, legal title and physical form are not required; a wholly future transaction does not meet the past-event condition.

   Reference: IFRS Foundation Conceptual Framework Project Summary — p.8, Revised definition of an asset

3. 3An EU retailer collects VAT from customers and remits it to the tax authority. How is this tax classified?

   1. A.A direct tax on the retailer's net profit
   2. B.An indirect tax collected through salesCorrect answer: B
   3. C.A direct tax on the customer's wealth
   4. D.An indirect tax on the retailer's dividends

   Explanation: The source states: "an indirect tax as it is collected from customers (the buyers) as part of the price paid to their suppliers of goods or services (the sellers) who will remit this tax to the revenue authorities." Collection through the seller makes VAT an indirect tax. It is not a tax on profit, wealth or dividends.

   Reference: European Commission — How VAT works — What is VAT?

4. 4A business needs to draw and repay varying amounts of short-term cash through its existing bank account. Which facility has this characteristic?

   1. A.A fixed-term deposit
   2. B.An ordinary share issue
   3. C.A business overdraftCorrect answer: C
   4. D.A finance lease of machinery

   Explanation: The source states: "A business overdraft is a line of credit on your business bank account that gives you more short-term cash flow than your business can fund from its own capital." An overdraft is a flexible bank-account borrowing facility. A deposit invests cash, shares raise equity, and a machinery lease finances use of an asset rather than withdrawals from the account.

   Reference: British Business Bank — Business overdrafts — What is a business overdraft?

5. 5Which IFRS Foundation body develops sustainability disclosure standards?

   1. A.IFRS Interpretations Committee
   2. B.International Accounting Standards Board
   3. C.IFRS Advisory Council
   4. D.International Sustainability Standards BoardCorrect answer: D

   Explanation: The source states: "IFRS Sustainability Disclosure Standards are developed by the International Sustainability Standards Board (ISSB)." The ISSB has this remit. The IASB develops accounting standards; the other two bodies interpret or advise rather than issue these sustainability standards.

   Reference: IFRS Foundation — International Accounting Standards Board — IFRS Sustainability overview

6. 6An entity has a present duty to transfer an economic resource because of a past event and no practical ability to avoid the duty. Which element does this describe?

   1. A.Equity
   2. B.Income
   3. C.A liabilityCorrect answer: C
   4. D.An asset

   Explanation: The source states: "A present obligation of the entity to transfer an economic resource as a result of past events" This is a liability. Equity is residual interest; income increases equity other than owner contributions; an asset is a controlled resource rather than a transfer obligation.

   Reference: IFRS Foundation Conceptual Framework Project Summary — p.8, Revised definition of a liability

7. 7In the EU VAT system, which party ultimately bears VAT on a purchase for final consumption?

   1. A.The supplier's shareholders
   2. B.The supplier's employees
   3. C.The final consumerCorrect answer: C
   4. D.The tax authority

   Explanation: The source states: "a consumption tax because it is borne ultimately by the final consumer." The supplier collects the tax, but the final consumer bears it. Employees, shareholders and the authority are not the final purchaser in this transaction.

   Reference: European Commission — How VAT works — What is VAT?

8. 8A lender advances a fixed sum to a business under a six-month loan agreement. What obligation does this create?

   1. A.Repayment of the sum with interest over the agreed periodCorrect answer: A
   2. B.Payment of dividends whenever the lender requests them
   3. C.Transfer of ownership of all outstanding customer invoices
   4. D.Repayment only if the business reports an accounting profit

   Explanation: The source states: "The borrower must then pay that amount back, with interest, over an agreed period." A loan creates a contractual repayment obligation, not equity dividends, automatic receivables transfer or repayment conditional on profit.

   Reference: British Business Bank — Other forms of finance — What is a business loan?

9. 9Within the IFRS Foundation's governance structure, who appoints IASB members?

   1. A.The Trustees of the IFRS FoundationCorrect answer: A
   2. B.The audit committees of listed companies
   3. C.The national securities exchanges
   4. D.The IFRS Interpretations Committee

   Explanation: The source states: "Members are appointed by the Trustees of the IFRS Foundation" Trustees appoint members through an open process. Auditing, listing and interpreting functions do not confer this appointment role.

   Reference: IFRS Foundation — International Accounting Standards Board — About the IASB — member appointment

10. 10Which set describes a faithful representation to the maximum extent possible?

    1. A.Complete, neutral and free from errorCorrect answer: A
    2. B.Timely, comparable and verifiable
    3. C.Profitable, liquid and solvent
    4. D.Conservative, understated and consistent

    Explanation: The source states: "a faithful representation is, to the maximum extent possible, complete, neutral and free from error" These three features describe faithful representation. The second set contains enhancing characteristics; the third concerns financial performance or position; intentional understatement conflicts with neutrality.

    Reference: IFRS Foundation Conceptual Framework Project Summary — p.6, Faithful representation