Essay Questions in the Financial Accounting Subject

Last verified: 31 October 2026. Sources: SOCPA's amendments to the Fellowship exam structure and weights (2025), Fellowship exam timetable and Fellowship exam topics. Check the Fellowship exam page before your exam, since the structure and weights can change.

The question bank and full mock exam on this site cover the multiple-choice part only. The essay questions are not in the bank, so practise them with this guide: how to answer, how to split your time, where candidates lose marks, and three worked examples with model answers and paragraph references to the standards.

The essay part in numbers

SOCPA gives an example in its FAQ: a candidate with 60 marks in multiple choice and 3 in the essays has a total of 63 and still fails the subject, because the essay score is below 5. So do not skip the essay part, even if multiple choice is your strength.

The answers in this guide follow IAS 1 Presentation of Financial Statements, which applies to the 2026 sessions. IFRS 18 replaces IAS 1 for periods beginning on or after 1 January 2027, so watch SOCPA's announcements on which version of the standards applies to the 2027 sessions.

Common essay question formats

Essay questions in professional financial accounting exams usually give a short numerical case and ask for one or more of the following:

• Journal entries. The initial recognition entry and the year-end entries, such as a lessee's lease entries, an impairment loss, or the correction of a prior-period error.
• A calculation and its presentation. A figure in profit or loss, a balance in the statement of financial position split into current and non-current, and sometimes the effect on the statement of cash flows and the notes.
• A comparison of two treatments. For example, the cost model against the fair value model for investment property (since 1 January 2022 the Capital Market Authority has let listed companies choose the fair value or revaluation model for property and investment property, while plant, equipment and intangible assets stay on the cost model), principal against agent in revenue, or adjusting against non-adjusting events after the reporting period. You show the effect of each treatment in figures, then the correct treatment for the case with its paragraph.
• Explaining and justifying a treatment. A short paragraph that states the condition in the standard and its paragraph number, then applies it to the facts of the case.

The subject has three topics in SOCPA's Fellowship exam topics: the conceptual framework and accounting cycle (5% to 15%), measurement, presentation and disclosure of the basic financial statement elements (45% to 65%), and events affecting financial position and results (25% to 45%). The second topic is the largest and covers leases, revenue, financial instruments and non-current assets, so the three examples below come from it and from the third topic.

How to answer in five steps

1. Read the requirement first. Before the numbers, pin down: entries, balances or a comparison? At what date? For the first year only or for two years? Presentation only, or disclosure as well?
2. Cite the standard and paragraph with every treatment. One short line per item: the fact, the treatment, then the reference. Example: "Initial direct costs SAR 15,000: added to the cost of the right-of-use asset (IFRS 16.24(c))."
3. Draw a table for the calculation. A year-by-year liability schedule, a transaction price allocation, or an impairment allocation. The table shows your working, so you earn method marks even if one figure is wrong.
4. Write entries with the correct accounts. The debit account, the credit account and the amount, not just the final figure.
5. Finish with a conclusion and presentation sentence. For example: "The lease liability at 31 December 2026 is SAR 415,812, of which 95,051 is current and 320,761 non-current."

Splitting the 120 minutes

Four questions in 120 minutes means about 30 minutes per question. A suggested plan:

• First 5 minutes: read all four questions, and if the marks for each question are shown, split your time by them.
• About 25 minutes per question, starting with the one whose method you know. When a question's time is up, write the remaining steps as short lines and move on.
• Last 15 minutes: finish what you left, then check table totals, that entries balance, and the current and non-current split.

If you run short, write the structure of the answer: the standard and paragraph, table headings and the account names for the entries, then fill in as many figures as you can. Do not leave a question blank: you need at least 5 of the 25 marks.

Where candidates lose marks

• Recognising rent expense equal to the cash paid. A lessee recognises a right-of-use asset and a lease liability (IFRS 16.22), then depreciation and interest separately (IFRS 16.49), unless it elects the short-term or low-value exemption (IFRS 16.5–6).
• Depreciating the right-of-use asset over useful life when ownership does not transfer. It is depreciated over the shorter of useful life and lease term (IFRS 16.32).
• Not splitting the lease liability into current and non-current. The current portion is the reduction in the liability over the next year, which is the payment less next year's interest, not the full payment.
• Recognising all contract revenue on delivery. Each distinct performance obligation gets its share of the price and is recognised when it is satisfied (IFRS 15.22 and 15.31).
• Putting the whole discount on one item. A discount is allocated to all performance obligations in proportion to standalone selling prices unless the conditions in IFRS 15.82 are met (IFRS 15.81).
• Comparing carrying amount with fair value only in an impairment test. Recoverable amount is the higher of fair value less costs of disposal and value in use (IAS 36.18).
• Allocating an impairment loss pro rata across the unit from the start. Goodwill is reduced first, then the rest goes pro rata to the other assets (IAS 36.104), and no asset is reduced below the highest of its fair value less costs of disposal, its value in use and zero (IAS 36.105).
• Reversing a goodwill impairment in a later year. It is never reversed (IAS 36.124).

Example 1: A lease in the lessee's books (IFRS 16)

On 1 January 2026 Company A leased a warehouse in Riyadh for 5 years, with a fixed annual payment of SAR 120,000 paid at the end of each year. There is no purchase option and ownership does not transfer; the warehouse has a useful life of 20 years. The rate implicit in the lease cannot be readily determined, and the company's incremental borrowing rate is 6% a year. The company paid initial direct costs of SAR 15,000 and received a cash lease incentive of SAR 5,000 from the lessor at commencement. The present value factor for a 5-year ordinary annuity at 6% is 4.21236. The year ends on 31 December, and the company uses the straight-line method.

Required: (1) The entries on 1 January 2026 and 31 December 2026. (2) The effect of the lease on profit or loss for 2026. (3) The balances in the statement of financial position at 31 December 2026, with the liability split into current and non-current.

Model answer

Step 1: Initial measurement

Step 2: Liability schedule (interest under IFRS 16.36(a) and 16.38)

Step 3: Depreciation = 515,483 ÷ 5 = about SAR 103,097. The period is 5 years because ownership does not transfer and there is no purchase option, so the asset is depreciated over the shorter of the lease term (5) and useful life (20) (IFRS 16.31–32).

Step 4: Entries

Step 5: Presentation

• Profit or loss for 2026: depreciation of 103,097 and interest expense of 30,329, each presented separately (IFRS 16.49), a total of SAR 133,426 against 120,000 paid.
• Statement of financial position at 31 December 2026: right-of-use asset at a net 412,386 (515,483 − 103,097), presented separately or disclosed in the notes (IFRS 16.47).
• Lease liability of 415,812: current portion 95,051 (120,000 less 2027 interest of 24,949) and non-current portion 320,761 (IAS 1.69).
• Statement of cash flows: principal repaid of 89,671 (120,000 − 30,329) in financing activities, and interest of 30,329 according to the company's policy under IAS 7 (IFRS 16.50).

Conclusion: Lease expenses for 2026 are SAR 133,426 (depreciation 103,097 and interest 30,329); the right-of-use asset is 412,386, and the lease liability is 415,812, of which 95,051 is current.

Example 2: Allocating the transaction price to several performance obligations (IFRS 15)

On 1 July 2026 Company B signed a contract with a customer to sell a machine, install it and maintain it for two years, for a total price of SAR 960,000 paid in full on delivery. The machine was delivered and control passed on 1 July 2026, installation was completed on 31 July 2026, and maintenance runs from 1 July 2026 to 30 June 2028. Installation is simple, is offered by other firms in the market, and does not modify the machine. Standalone selling prices: machine 800,000, installation 40,000, two years of maintenance 360,000. Assume the contract has no significant financing component and that the company has no evidence that ties the discount to a particular item. The year ends on 31 December.

Required: (1) Identify the performance obligations. (2) Allocate the transaction price. (3) Calculate 2026 revenue and the contract balance at 31 December 2026, and show how it is presented.

Model answer

Step 1: Performance obligations. Three: the machine, installation and maintenance. The customer can benefit from each on its own or with readily available resources, and each promise is separately identifiable in the contract because installation does not significantly modify the machine (IFRS 15.22, 15.27 and 15.29).

Step 2: Allocation on the basis of relative standalone selling prices (IFRS 15.73 and 15.76). Standalone prices total 1,200,000 against a price of 960,000, so the discount of 240,000 (20%) is spread across all three obligations (IFRS 15.81).

Step 3: Timing of recognition

Step 4: Entries

• 1 July 2026: Dr Cash 960,000; Cr Revenue 640,000 and Cr Contract liability 320,000 (installation 32,000 and maintenance 288,000).
• 31 July 2026: Dr Contract liability, Cr Revenue 32,000.
• 31 December 2026: Dr Contract liability, Cr Revenue 72,000.

Step 5: Presentation. The contract liability at 31 December 2026 = 960,000 − 744,000 = SAR 216,000, because the customer paid before the company performed the maintenance (IFRS 15.106). Of this, 144,000 is current (2027 maintenance) and 72,000 non-current (maintenance for the first half of 2028). Disclose opening and closing contract balances (IFRS 15.116) and the transaction price allocated to unsatisfied performance obligations (IFRS 15.120).

Conclusion: 2026 revenue is SAR 744,000 and the contract liability is SAR 216,000, of which 144,000 is current. Recognising the whole amount on delivery would overstate 2026 revenue by 216,000.

Example 3: Impairment of a cash-generating unit with goodwill (IAS 36)

Company C acquired a business in 2024 and allocated the resulting goodwill to cash-generating unit X. At 31 December 2026 the carrying amounts of the unit's assets were: goodwill 200,000, buildings 900,000, machinery 600,000 and a patent 300,000, a total of SAR 2,000,000. Because a new competitor entered the market, management estimated the unit's value in use at SAR 1,550,000 and its fair value less costs of disposal at SAR 1,500,000. The patent's own fair value less costs of disposal is SAR 280,000; the fair values of the buildings and machinery cannot be estimated individually. The company uses the cost model for all assets.

Required: (1) Calculate the impairment loss. (2) Allocate it to the unit's assets. (3) Write the entry and show its effect on the financial statements.

Model answer

Step 1: The test. A unit to which goodwill has been allocated is tested annually and whenever there is an indication of impairment (IAS 36.90). Recoverable amount is the higher of the two values = 1,550,000 (IAS 36.18). Impairment loss = 2,000,000 − 1,550,000 = SAR 450,000 (IAS 36.90).

Step 2: First allocation (IAS 36.104): goodwill first, 200,000, then the remaining 250,000 to the other assets in proportion to their carrying amounts out of 1,800,000.

Step 3: Reallocation. The first allocation would take the patent down to 258,333, below its fair value less costs of disposal of 280,000, so it can be reduced by no more than 20,000 (IAS 36.105). The excess of 21,667 is allocated to buildings and machinery in the ratio 900,000 to 600,000 out of 1,500,000: buildings 13,000 and machinery 8,667 (last sentence of IAS 36.105).

Step 4: Entry and presentation

• Dr Impairment loss 450,000; Cr Goodwill 200,000, Cr Accumulated impairment, buildings 138,000, Cr Accumulated impairment, machinery 92,000, Cr Accumulated impairment, patent 20,000.
• The loss is recognised in profit or loss because the assets are on the cost model (IAS 36.60), and each asset is then depreciated or amortised on its new carrying amount (IAS 36.63).
• Disclose the loss by class of asset, the events that led to it, the basis of recoverable amount and the discount rate used in value in use (IAS 36.126 and 36.130).
• If the unit's position improves later, the losses on the buildings, machinery and patent can be reversed under the conditions in IAS 36.122, but the goodwill loss of 200,000 is never reversed (IAS 36.124).

Conclusion: An impairment loss of SAR 450,000 in profit or loss for 2026; goodwill is nil, and the unit's carrying amount after impairment of 1,550,000 equals its recoverable amount.

How to use this guide with the question bank

• Solve each example on paper before reading the answer, allowing 30 minutes per example. Then compare your table and entries with the model answer line by line.
• Change one figure and solve again: make the payments due at the start of each year in Example 1, or set the patent's fair value at 250,000 in Example 3.
• The standards you need for the essays are the same ones tested in multiple choice. Practise the seven topics in the bank, and read the subject content and weights and the study plan.

To see what you would score today on the multiple-choice part, start 10 free questions, no sign-up. You will see your score against the pass mark and which topics cost you points.

This is a study guide from an independent website with no connection to SOCPA or any government body. The worked examples are our own, written for practice; the authoritative reference is always the text of the endorsed standards and SOCPA's announcements.