CPA EXAM 2024 100 VERIFIED PRACTICE
QUESTIONS AND ANSWERS TOPICS
COVERED(FAR,AUD,REG,BEC) GRADED A+
Financial Accounting and Reporting (FAR)
1. What is the primary purpose of the statement of cash flows?
o Answer: The primary purpose of the statement of cash flows is to provide
information about a company's cash receipts and cash payments during a period,
helping users assess the company’s liquidity, solvency, and financial flexibility.
2. Explain the revenue recognition principle.
,CPA(CERTIFIED PUBLIC ACCOUNTANT) EXAM 2024
o Answer: The revenue recognition principle states that revenue should be
recognized when it is earned and realizable, regardless of when cash is received.
This typically occurs when goods or services are transferred to the customer.
3. What is the difference between an operating lease and a capital lease?
o Answer: An operating lease is a rental agreement that does not transfer ownership
of the asset, and lease payments are expensed as incurred. A capital lease (or
finance lease) transfers ownership rights and obligations to the lessee, requiring
the asset and liability to be recorded on the balance sheet.
4. What is the purpose of the allowance for doubtful accounts?
o Answer: The allowance for doubtful accounts is a contra-asset account used to
estimate and account for receivables that may not be collectible, thus providing a
more accurate representation of the net realizable value of accounts receivable.
5. How is goodwill calculated under the acquisition method?
o Answer: Goodwill is calculated as the excess of the purchase price over the fair
value of the identifiable net assets acquired in a business combination. The
formula is: Goodwill = Purchase Price - Fair Value of Net Assets Acquired.
6. What is the difference between FIFO and LIFO inventory costing methods?
, CPA(CERTIFIED PUBLIC ACCOUNTANT) EXAM 2024
o Answer: FIFO (First-In, First-Out) assumes that the oldest inventory items are
sold first, resulting in ending inventory being valued at the most recent costs.
LIFO (Last-In, First-Out) assumes that the newest inventory items are sold first,
leading to ending inventory being valued at older costs.
7. How is a lease classified as a finance lease under IFRS?
o Answer: Under IFRS, a lease is classified as a finance lease if it transfers
substantially all the risks and rewards of ownership of the asset to the lessee. This
includes factors such as the lease term, present value of lease payments, and
whether the lessee obtains ownership at the end of the lease.
8. What is the purpose of the statement of retained earnings?
o Answer: The statement of retained earnings provides information about changes
in retained earnings during a period, including net income, dividends declared,
and any adjustments for prior period errors or changes in accounting principles.
9. Describe the impairment test for long-lived assets.
o Answer: The impairment test for long-lived assets involves comparing the
carrying amount of the asset to its recoverable amount (the higher of fair value
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