Questions and Answers of Financial Reporting

The IASB Visit the website of the International Accounting Standards Board (www.ifrs.org). Report on:1. the resources that are provided by the IASB for the accounting profession 2. the funding of
ASICVisit the website of the Australian Securities and Investments Commission (www.asic.gov.au). Report on:1. what ASIC is and its role2. the types of investigations and enforcement performed by
The FRC or The XRBVisit the website of the Financial Reporting Council (www.frc.gov.au) or the XRB website (www.xrb.govt.nz). Locate its strategic plan and report on:1. the strategic priorities of
Maple Red Pty Ltd is a research institute operates in Queensland. It has developed and owned more than 40 intellectual property. The company’s accounting record shows that it has total assets of
Middleborough is a proprietary company operates in South Australia. It has total assets of $$48$ million and total liabilities of $$25$ million. Its revenue for the current year was $$45$
While a store you own was being cleaned, a customer slipped on the wet floor and fell, resulting in a serious and costly injury. The customer has sued your company. Your lawyers advised that while
An entity purchases a rental property for $$5$ 000 000 as an investment. The building is fully rented and is in a good area. At the end of the current year, the entity hires an appraiser who
What measurement principles might be most appropriate for a company that has ceased to be a going concern (e.g. creditors have appointed a receiver who is seeking buyers for the company’s assets)?
The Conceptual Framework defines an asset as a present economic resource controlled by the entity as a result of past events. At the same time the Conceptual Framework establishes that an asset is to
A government gives a grant to a medical research company to develop a vaccine to protect people from getting seriously ill if infected COVID-19. The grant will be paid in 3 payments over two years.
Verocia Ltd is the guarantor for its subsidiary’s bank loan. Explain how Verocia Ltd should account for this event, if:(a) You have no reason to believe the subsidiary will default on the
Moscow Legal and Associates issued an invoice to one of its clients $7850 for legal advice provided to the client. Explain how Moscow Legal and Associates should record this event, justifying your
A retail store of Savemart Ltd was broke in and $21 000 was stolen from night safe. Explain how Savemart should account for this event, justifying your answer by reference to relevant Conceptual
The following events occurred in relation to assets and liabilities recognised by Watson Ltd.(a) Watson Ltd settled (paid) an account payable.(b) Watson Ltd sold an item of inventory to a
Which of the following statements about Islamic banking is not true?a. Interest (known as Riba) is prohibited.b. Conventional interest is considered by scholars to result in inequality and injustice
Which of the following statements is true?a. Murabaha, an equity instrument, is a sales contract in which the asset is sold by the bank to the customer at costplus-profit.b. Salam is a forward
Which of the following statements is true?a. Money is a commodity as well as a medium of exchange in a conventional mode of financing.b. Money is not a commodity and is a medium of exchange and store
The relationship between an Islamic bank and its customers is that of a:a. Partner/investorb. Buyer and sellerc. Lessor/lesseed. All of the above
In general, financial accounting can be broken down into the following steps:a. Identifying and recording economic transactionsb. Recording and communicating economic transactionsc. Identifying,
Which of the following statements is true regarding the information needs of users of an IFI’s financial statements?a. They require information about the institution’s Shariahcompliant
The standards-setting body of the IFRS Foundation isa. International Accounting Standards Board (IASB)b. IFRS Foundation Monitoring Boardc. IFRS Interpretations Committeed. IFRS Foundation Trustees
The Shariah governance frameworka. Gives comprehensive guidance to ensure compliance with Shariah principlesb. Helps to enhance the confidence of stakeholders and the financial markets in the
Which of the following statements is not true?a. AAOIFI is responsible for the development and issuance of standards for the Islamic finance industry.b. All IFIs across the world are required to
Under AAOIFI code of ethics, accounting is:a. A necessary evilb. Required only for larger organisationsc. A Farz-e-Kifayad. Important for investment decision-making by investor
Which of the following statements is true about why AAOIFI Framework was introduced?a. AAOIFI Framework was introduced because there was no existing framework for banking industry.b. AAOIFI Framework
Which of the following are considered to be common information needs of users?a. Information about the institution’s transactions, its economic resources and claims against the institution or on
Faithful representation of financial information includes which of the following?a. Relevance, Neutrality, Substance and Form, Transparencyb. Materiality, Prudence, Consistency, Relevancec.
Which of the following statements is the correct definition for net return on quasi-equity?a. Return attributable to holders of owners’ equity during the period covered by the financial
Which of the following options shows the correct hierarchical level for selection and application of accounting policies in ascending order (4 being the first step)?a. i. The management’s judgement
The AAOIFI Conceptual Framework includes the following chapters, except:a. Users, objectives, and limitations of financial informationb. Concepts of capital and capital maintenancec. Financial
General-purpose financial statements comprisea. Primary statements and explanatory notes including accounting policiesb. Primary statements onlyc. Statements of cash flows and explanatory notesd.
Derecognition of an asset might occur when:a. The control of an asset is transferred to a third party, for example, through sale or gift.b. No future economic benefits are expected from the asset.c.
Which of the following statements is true?a. Historical cost of an asset refers to the amount received by the institution when the liability was incurred, or cash or cash equivalents are expected to
The AAOIFI Conceptual Framework defines the following elements of the financial statements:a. Assets, liabilities, quasi-equity, owners’ equity, and income and expensesb. Assets, liabilities,
Falah Islamic Bank acquired an asset on Dec 30, 2022, for USD 1,000. A creditworthy client made a binding promise to purchase the asset on Jan 1, 2023, at 20% markup. However, on Dec 31, 2022, the
Mr Hamad made a non-binding promise to an Islamic bank that he would buy a vehicle from the bank and paid USD 240 as Hamish Jiddiyyah. The bank purchased a car for USD 500 and offered it to Mr Hamad
On Dec 31, 2022, a client made a non-binding promise to purchase a car from the bank as a part of a Murabaha arrangement. The bank purchased the car on Jan 1, 2023, at a cost of USD 1000 and sold the
As per the Murabaha contract, the selling price of USD 1,500 is due from the client in five equal instalments of USD 300 at the end of each year. What entry should be passed by the bank at the time
Barkat Islamic Bank purchased an item of machinery for sale on Jan 2, 2022, for USD 10,000. The equivalent cash price of the machinery through a spot sales contract was USD 11,000. The machinery is
JITB Islamic Bank purchased a motor vehicle which it intends to sell under a Murabaha contract. The cost of the car was USD 1,000,000. Other costs related to the acquisition were:At what value will
Rehmat Islamic Bank sells a generator under a Murabaha contract which it acquired for Rs 1,000,000. The terms of the contract require that instalment are due over a period of three years. The annual
If an IFI expects that some of the proceeds under a Murabaha contract will not be recovered, what entry should be made in the accounts of the IFI?a. Cr. Receivable; Dr. Provision for Doubtful Debtsb.
Barkat Bank acquires an asset from a vendor to be sold under a Murabaha contract to its client. At what point should the bank recognise the inventory in its books?a. When the legal title is
Which of the following statements is true about the subject matter under Salam?a. The subject matter has to be specific with unique attributes that make them different from one another.b. The subject
Which of the following is true?a. The buyer in a Salam contract may form a Parallel Salam contract acting as the seller.b. Parallel Salam contract can’t be formed with the seller of associated
Which of the following statements is true?a. Price in Parallel Salam contract should be greater than the price in Salam contract.b. Price in Salam contract should be greater than the price in
When the Salam commodity is sold in the open market, then the Salam profit is equal to:a. The difference between the historical price of the Salam commodity and the price paid to the seller in the
At the end of each period, under IFRS, the difference between the fair value of the Salam receivable and its historical value is:a. Recognised as a lossb. Recognised as a bad debt expensec.
Which of the following is not a method for disposing Salam inventory?a. Selling in the open marketb. Entering into a Parallel Salam contractc. Entering into a traditional forward contract to sell the
Under AAOIFI, if an Islamic bank recovers receivables through pledged securities and the recovered amount exceeds the outstanding amount, the bank will:a. Debit cash, Credit accounts receivable, and
Price risk of Al-Muslam Fihi refers to a scenario where:a. The client will be unable to deliver the commodity as promised in the contract.b. The carrying value of the commodity exceeds the book
Dhafer Islamic Bank (DIB) enters into a Salam contract with Hadi Corporation to receive a predetermined quantity of sugar on Aug 19, 2022. The advance payment for the sugar was Tunisian Dinars(TND)
On Jan 1, 2023, ABC Islamic Bank entered into a Salam contract with a farmer to buy 3 tons of wheat at USD 2,000 per ton to be delivered on Jun 30, 2023. The bank paid USD 6,000 at the date of
Istisna’a is a sales contract betweena. Al-Mustasni’ and Al-Sani’b. Al-Mustasni’ and Al-Masnoo’c. Al-Mustasni’ and clientd. Al-Sani’ and the manufacturer
Al-Mustasni’ in an Istisna’a contract isa. Sellerb. Buyerc. Manufacturerd. Bank
In an Istisna’a contract, the manufacturer promises to deliver the specifically manufactured asset at an/a:a. Unspecified date but pre-set priceb. Specific date and fair value price at the time of
In a Parallel Istisna’a contract, compared to primary Istisna’a, a third party is involved which is:a. Buyerb. Sellerc. Manufacturerd. Bank
After signing an Istisna’a contract, how would the pre-contract cost be recorded in the books of the bank?a. Debit deferred (pre-contract) cost, Credit Istisna’a WIPb. Debit Istisna’a WIP,
Cash equivalent value in an Istisna’a contract isa. The expected cost to complete the contractb. The difference between the expected Istisna’a profit and the expected cost to complete the
The revenue and related profit under an Istisna’a contract are recorded in each financial period using:a. Percentage of completion method onlyb. Cost to complete method onlyc. Percentage of
An Islamic bank has an Istisna’a agreement to construct a football stadium within a period of four years. The Istisna’a revenue is USD 200 million, and the estimated profit in the contract is USD
Under the completed contract method, in case the percentage of completion is unknown, how should the bank recognise the revenue and cost in the income statement?a. Equally divide revenue and cost
An Islamic bank entered an Istisna’a contract with a client to produce 500 chairs for USD 30,000 in one year. The bank also signed a Parallel Istisna’a contract with a furniture manufacturer to
In Ijarah Muntahia Bittamleek, transfer of ownership can happen in the following ways except:a. An ordinary or conditional giftb. A sale transactionc. An auctiond. Gradual transfer of ownership
All of the following are benefits of Ijarah transactions except:a. Ijarah allows companies to completely finance their longterm assets.b. Ijarah can effectively reduce the risk of obsolescence.c. The
Which of the following topics on Ijarah is covered by FAS 32?a. Sale and Ijarah-back transactionsb. Sukuk agreement in which underlying asset is based on Ijarah transactionc. Ijarah transactions
In the books of the lessee, the right-of-use asset should initially be recorded at:a. Cost less expected depreciationb. Fair value less costs to sellc. Market price less estimated expenses of the
According to FAS 32, operating Ijarah is:a. Also termed as finance Ijarahb. An Ijarah that is not accompanied with an option of transfer of ownership of the underlying asset to the lesseec.
In the books of the lessor, revenue from the Ijarah contract is recognised:a. As the estimated revenue income at the beginning of each accounting periodb. Proportionately in each accounting period on
How are material initial direct costs (other than costs related to Ijarah assets) treated by the lessor?a. Expensed in the income statement in the period in which they are incurredb. Added to the
The accounting entries in the lessor’s books for the transfer of Ijarah assets through a gift transaction in Ijarah MBT will be:a. Dr. Ijarah Asset; Cr. Accumulated Depreciationb. Dr. Cash; Cr.
Which of the following is not a minimum disclosure requirement for Ijarah transactions in the lessor’s books?a. Estimated amounts of assets to be financed using Ijarah within the next 12 monthsb.
Which of the following is a key difference between Ijarah and a finance lease?a. The Islamic bank does not own the asset in Ijarah, while the bank owns the asset in a finance lease.b. The client
Under a Mudaraba contract:a. Profit-sharing ratios are decided by the Rab al-Maal at the start of the contract.b. The Rab al-Maal bears all losses except those incurred due to the negligence of the
FAS 3 applies to:a. Where the Islamic bank is acting as Rab al-Maalb. The accounting of the Mudaraba transactions in the books of Mudaribc. Accounting treatment of unrestricted investment accounts
Under an unrestricted Mudaraba contract:a. The investment account holder authorises the Islamic bank to invest their funds in a manner deemed appropriate by the Islamic bank.b. Certain limitations
Subsequent to initial recognition, Mudaraba capital must:a. Be recognised at fair valueb. Continue to be recognised at initial recognition costc. Be remeasured periodicallyd. Be amortised over time
If there is a loss at Mudaraba liquidation:a. The Rab al-Maal can require a Mudarib to provide a guarantee against his/her negligence if there has been any.b. If a Mudarib fails to pay the cash on
On 12 April, 2023, Tayeb Islamic Bank transferred cash of USD 400,000 and an apartment to a client as contribution to a Mudaraba arrangement. The bank acquired the apartment for USD 300,000, and the
On 23 March, 2023, Somer Islamic Bank transferred cash of USD 400,000 and an apartment to a client as contribution to a Mudaraba arrangement. The bank acquired the apartment for USD 300,000, and the
On 12 January, 2023, Half Islamic Bank signed a Mudaraba contract with a client for the construction of a housing unit. The bank provided USD 500,000 for the construction. Both parties agreed to a
Tamaam Islamic Bank made a five-year Mudaraba investment on January 12, 2023. The total Mudaraba investment capital provided by the bank was USD 200,000. On liquidation, only USD 160,000 could be
Al-Ain Islamic Bank provided financing of USD 4,000,000 to a client under a multi-period Mudaraba contract. During the first year of operations, the Mudaraba earned a profit of USD 500,000.The
Two parties decided to construct a commercial building. Party A will invest SAR 1,500,000, and Party B will invest SAR 850,000.Both parties agreed that profit and loss will be shared in proportion of
On Mar 23, 2023, MLA Islamic Bank transferred cash of PKR 300,000 and an apartment to a client. The bank had acquired the apartment for PKR 200,000, and the current book value of the apartment is
On May 12, 2023, TRS Islamic Bank transferred cash of SAR 300,000 and an apartment to a client. The bank had acquired the apartment for SAR 200,000, and the current book value of the apartment is
HUK Islamic Bank advanced BD 200,000 to a client under a Musharakah arrangement and owns 40% of the equity of the business. At the end of the period, on December 31, 2023, as stipulated in the
For a single-period Musharakah, whether constant Musharakah or diminishing Musharakah, the profit or loss shall be recognised:a. When the profit is distributed to the partnersb. At the year-endc.
On January 3, 2023, LFA Islamic Bank signed a diminishing Musharakah contract with a client for the construction of a housing unit. The bank contributed AED 200,000 and the client invested AED
TAR Islamic Bank made a five-year-long Musharakah investment on January 12, 2023. The total Musharakah investment capital provided by the bank was SAR 100,000. On liquidation, only USD 80,000 could
On February 3, 2023, Tehwar Islamic provided AED 100,000 in cash and a commercial apartment as Musharakah capital for investment in a real estate project. At the time of the transfer, the fair price
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement is known as:a. Joint
To classify a joint arrangement as either a joint operation or a joint venture, the Islamic bank should consider:a. Structure and legal form of any separate vehicleb. Expenses, including its share of
To ensure that sufficient cash is available at any point in time to fund the withdrawal of cash by its clients, banks use:a. Current accountb. Restricted investment accountc. Unrestricted investment
Profit equalisation reserve (PER) is used for:a. Smoothing the profit earned on the investmentsb. Minimising the variance in return on investmentsc. Preserving the capital of investment account
After giving the Mudarib’s share, a specific proportion of distributable profits is allocated to which reserve:a. Profit equalisation reserve (PER)b. Investment risk reserve (IRR)c. Both a and bd.
Accounting for risk reserves is covered ina. FAS 35b. FAS 31c. FAS 27d. FAS 1
The journal entry for the recognition of unrestricted investment account in the books of the IFI would be:a. Debit cash, Credit liabilityb. Debit cash, Credit investment account (quasi-equity)c.
The contribution to the IRR is made:a. After allocating the Mudarib’s share but before allocating the IAH’s shareb. After allocating both the Mudarib’s and IAH’s sharec. Before allocating any
The entry for recording the contribution to PER reserves from the profit earned by investment accounts by the IFI is as follows:a. Debit profit on investment accounts (income), Credit cashb. Debit

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