ACCA FA Practice Test

ACCA FA Provisions, Capital Structure & Finance Costs Practice Questions

Provisions, Capital Structure & Finance Costs makes up 5 of every 50 questions on a Tigertest ACCA FA practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on ACCA's FA syllabus and study guide for 2026-27, with IFRS 18 formats. Original Section A style questions; Section B not included. Not affiliated with ACCA.

1. 1. Under IAS 37, a provision is recognised when there is a present obligation from a past event, an outflow is probable and:

   • A.The board has approved payment
   • B.A reliable estimate can be made
   • C.A court has ordered payment
   • D.Cash has already been paid

   Answer: B. All three conditions must be met: a present obligation from a past event, a probable outflow of resources and a reliable estimate of the amount.

2. 2. A customer is suing a business. Its lawyers say the claim could possibly succeed but probably will not. The business should:

   • A.Make no disclosure at all
   • B.Recognise a contingent asset
   • C.Recognise a provision
   • D.Disclose a contingent liability

   Answer: D. A possible but not probable outflow is a contingent liability: disclosed in the notes, not recognised. A provision needs a probable outflow.

3. 3. A contingent liability where the chance of any outflow is remote is:

   • A.Neither recognised nor disclosed
   • B.Recognised as an accrual
   • C.Disclosed in a note
   • D.Recognised as a provision

   Answer: A. IAS 37 does not require disclosure of contingent liabilities whose outflow is remote. Possible outflows are disclosed; probable ones are provided for.

4. 4. A business is suing a supplier and will probably, but not virtually certainly, win $40,000 in damages. It should:

   • A.Recognise a $40,000 receivable
   • B.Recognise a provision
   • C.Disclose a contingent asset
   • D.Recognise $40,000 as income

   Answer: C. A probable inflow is a contingent asset and is disclosed only. It is recognised as an asset only when the inflow is virtually certain.

5. 5. A warranty provision was $18,500 at the start of the year and is required to be $15,200 at the end. The movement is recorded as:

   • A.Dr Expense, Cr Provision $15,200
   • B.Dr Provision, Cr Bank $3,300
   • C.Dr Provision, Cr Expense $3,300
   • D.Dr Expense, Cr Provision $3,300

   Answer: C. Only the change in the provision goes through profit or loss. A decrease of $18,500 - $15,200 = $3,300 is credited to the expense, raising profit.

6. 6. A company sold 10,000 items under a one-year warranty. It expects 12% to need minor repairs at $40 each and 3% to need major repairs at $250 each. The warranty provision is:

   • A.$123,000
   • B.$75,000
   • C.$290,000
   • D.$48,000

   Answer: A. For a large population, the provision is the expected value: 10,000 x (12% x $40 + 3% x $250) = 10,000 x $12.30 = $123,000.

7. 7. Redeemable preference shares are shown in the statement of financial position as:

   • A.Retained earnings
   • B.Share capital
   • C.Share premium
   • D.A liability

   Answer: D. The company is obliged to repay redeemable preference shares, so in substance they are debt and are classified as a liability, usually non-current.

8. 8. Dividends on redeemable preference shares classified as a liability are presented as:

   • A.An operating expense
   • B.An interest expense
   • C.A dividend in equity
   • D.A deduction from share premium

   Answer: B. Because the shares are a liability, the dividends on them are a finance cost in profit or loss, not a distribution of equity.

9. 9. A company issues 200,000 shares with a nominal value of $0.50 each at $1.80 each for cash. Share premium increases by:

   • A.$460,000
   • B.$260,000
   • C.$360,000
   • D.$100,000

   Answer: B. Share capital rises by the nominal value, 200,000 x $0.50 = $100,000. The excess, 200,000 x $1.30 = $260,000, goes to share premium.

10. 10. A company has 1,200,000 ordinary shares of $0.25 each and a share premium balance of $180,000. It makes a 1 for 3 bonus issue using share premium. After the issue the share premium balance is:

    • A.$100,000
    • B.$280,000
    • C.$180,000
    • D.$80,000

    Answer: D. The issue creates 400,000 new shares with a nominal value of $100,000, funded from share premium: $180,000 - $100,000 = $80,000. No cash is received.