Free CIMA F2 Advanced Financial Reporting Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CIMA F2 Advanced Financial Reporting practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A young company receives funding from a venture capitalist in exchange for an ownership stake. How should the nature of this financing be described?

   1. A.A secured bank loan
   2. B.A private equity investmentCorrect answer: B
   3. C.A publicly traded bond
   4. D.A trade credit arrangement

   Explanation: ACCA states: "They provide equity (private equity as opposed to public equity in listed companies), not loans." An ownership stake is equity; bank loans and bonds create debt, while trade credit arises from suppliers.

   Reference: ACCA Business finance — Venture capitalists and business angels

2. 2For a sale of goods with a performance obligation satisfied at a point in time, which event governs revenue recognition under IFRS 15?

   1. A.The customer pays for the goods
   2. B.The seller issues its sales invoice
   3. C.The customer obtains controlCorrect answer: C
   4. D.The parties sign the sales contract

   Explanation: IFRS 15 states: "An asset is transferred when (or as) the customer obtains control of that asset." Control transfer governs recognition. Payment, invoicing and signing can occur before or after transfer, so none of those events alone establishes satisfaction of the obligation.

   Reference: UKEB IFRS 15 Revenue from Contracts with Customers — paragraph 31

3. 3A parent acquires 80% of a subsidiary for £960,000. At acquisition, the recognised fair value of identifiable net assets is £1,000,000 and non-controlling interests are measured at fair value of £230,000. There was no previous holding. What goodwill is recognised?

   1. A.£160,000
   2. B.£190,000Correct answer: B
   3. C.£230,000
   4. D.£390,000

   Explanation: IFRS 3 Business Combinations states: "The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below:" Paragraph 32(a) includes consideration and NCI; 32(b) is identifiable net assets. Goodwill = £960,000 + £230,000 − £1,000,000 = £190,000. £160,000 substitutes proportionate NCI (£200,000); £230,000 merely repeats NCI; £390,000 deducts only the parent's £800,000 share of net assets. Paragraph 32 includes "the amount of any non‑controlling interest in the acquiree" in the aggregate and deducts "the net of the acquisition‑date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this IFRS.".

   Reference: IFRS 3 Business Combinations — paragraph 32

4. 4What is the purpose of the International Sustainability Standards Board's global baseline of sustainability-related disclosures?

   1. A.To report every societal impact regardless of investor relevance
   2. B.To provide comparable investor-focused information for capital market decisionsCorrect answer: B
   3. C.To disclose climate matters only and exclude other sustainability risks
   4. D.To focus solely on past cash payments for environmental compliance

   Explanation: IFRS Foundation Introduction to the ISSB and IFRS Sustainability Disclosure Standards states: "The ISSB Standards establish a high-quality global baseline of investor-focused sustainability-related disclosures." The baseline serves capital-market decisions and covers sustainability-related risks and opportunities affecting prospects. Unrestricted impact reporting, climate-only coverage and past compliance cash payments each misstate that purpose.

   Reference: IFRS Foundation Introduction to the ISSB and IFRS Sustainability Disclosure Standards — Introducing the ISSB; What are the IFRS Sustainability Disclosure Standards?

5. 5An entity reports operating profit before interest and tax of £360,000, equity of £1.2 million and long-term borrowings of £800,000. Using equity plus long-term borrowings as capital employed, what is ROCE?

   1. A.1.8%
   2. B.30%
   3. C.18%Correct answer: C
   4. D.45%

   Explanation: ACCA How to approach performance appraisal questions states: "(Profit before interest and tax/shareholders funds plus long-term borrowings) x 100" The text identifies the denominator as equity plus long-term borrowing. ROCE = £360,000/(£1,200,000 + £800,000) × 100 = 18%. 30% uses equity alone, 45% uses debt alone, and 1.8% introduces a factor-of-ten percentage error.

   Reference: ACCA How to approach performance appraisal questions — Profitability, ROCE

6. 6What feature gives a conventional convertible bondholder potential participation in the issuer’s share-price growth?

   1. A.The issuer may cancel the principal
   2. B.The coupon must rise with earnings
   3. C.The holder may exchange debt for sharesCorrect answer: C
   4. D.The bond must be sold at its face value

   Explanation: ACCA explains: "Convertibles start life as loan capital and can later be converted, at the lenders’ option, into shares." The conversion right enables equity participation; it does not require an earnings-linked coupon, fixed resale price or cancellation of principal.

   Reference: ACCA Business finance — Convertible bonds

7. 7A customer receives and consumes the benefits of a routine cleaning service as the supplier performs it. Assuming a valid contract and reliable measurement, when is the service revenue recognised?

   1. A.Only when the final invoice is paid
   2. B.Entirely when the contract is signed
   3. C.Only when the contract period ends
   4. D.Over time as the service is performedCorrect answer: D

   Explanation: IFRS 15 identifies the criterion that "the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs". This meets over-time recognition, rather than waiting for cash, signature or the final day.

   Reference: UKEB IFRS 15 Revenue from Contracts with Customers — paragraph 35(a)

8. 8A parent has held 75% of a subsidiary's ordinary shares throughout the year. After all consolidation adjustments, the subsidiary's profit is £240,000. There are no preference shares or other interests. How much of that profit is attributable to non-controlling interests?

   1. A.£240,000
   2. B.£180,000
   3. C.£80,000
   4. D.£60,000Correct answer: D

   Explanation: UKEB IFRS 10 Consolidated Financial Statements states: "An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non‑controlling interests." NCI holds 25%; £240,000 × 25% = £60,000. £180,000 is the parent's share, £240,000 ignores the split, and £80,000 uses the NCI-to-parent ratio 25/75 instead of 25/100.

   Reference: UKEB IFRS 10 Consolidated Financial Statements — paragraph B94

9. 9Which benefit is an explicit aim of integrated reporting's broader approach to accountability?

   1. A.Assessing stewardship of the capitals an organisation uses or affectsCorrect answer: A
   2. B.Restricting accountability to assets recognised in the balance sheet
   3. C.Measuring success exclusively through annual dividend distributions
   4. D.Treating financial returns independently of other capitals

   Explanation: International Integrated Reporting Framework states: "Enhance accountability and stewardship for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their interdependencies" Integrated reporting broadens stewardship beyond recognised financial assets and acknowledges interdependencies. The other options narrow the focus to accounting recognition, dividends or isolated financial returns.

   Reference: International Integrated Reporting Framework — About integrated reporting, p.2

10. 10Revenue rises by 20% while operating profit rises by 10%, both from positive starting values. What happens to the operating profit margin?

    1. A.It rises because operating profit increased
    2. B.It is unchanged because both amounts increased
    3. C.It rises by the difference of ten percentage points
    4. D.It falls because profit grew more slowly than revenueCorrect answer: D

    Explanation: ACCA How to approach performance appraisal questions states: "Operating profit margin %: Operating Profit /sales x 100" The new margin equals the old margin × 1.10/1.20, so it falls. An increase in profit alone does not determine the ratio; matching direction does not mean unchanged margin; subtracting growth rates is not a margin calculation.

    Reference: ACCA How to approach performance appraisal questions — Profitability, operating profit margin