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SOCPA Fellowship Exam: Financial Accounting: free practice test

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Practice test questions with answers and explanations

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01On 1 January 2025, Al-Ufuq Company had assets of SAR 800,000 and liabilities of SAR 300,000. During the year the owners contributed SAR 50,000 of capital and withdrew SAR 20,000 as distributions. On 31 December 2025, assets were SAR 1,000,000 and liabilities SAR 380,000. What is the profit for the year?

Practice question Unit: Conceptual Framework and the accounting cycle

  1. ASAR 120,000

    120,000 is the total change in equity without removing owner contributions and distributions.

  2. BSAR 70,000

    70,000 removes the contribution but does not add back distributions: 120,000 − 50,000.

  3. CSAR 150,000

    150,000 reverses the effect of owner transactions: 120,000 + 50,000 − 20,000.

  4. DSAR 90,000 ✓ Correct answer

    Opening equity is 500,000 and closing 620,000, a change of 120,000, then 120,000 − 50,000 + 20,000 = 90,000.

Reference: Conceptual Framework for Financial Reporting (2018), Chapter 4, definitions of equity, income and expenses

02Al-Ufuq Company reported net profit of SAR 500,000 for 2025 after all expenses, including depreciation of SAR 80,000 and a loss of SAR 20,000 on the sale of equipment. During the year receivables increased by SAR 60,000, inventories decreased by SAR 30,000 and trade payables increased by SAR 40,000. There were no interest payments and no zakat or tax balances outstanding. What is net cash flow from operating activities under the indirect method?

Practice question Unit: Cash, financial instruments and receivables

  1. ASAR 570,000

    The loss is deducted instead of added back: 500,000 + 80,000 − 20,000 − 60,000 + 30,000 + 40,000 = 570,000. A non-cash loss must be added back to profit.

  2. BSAR 610,000 ✓ Correct answer

    Correct: 500,000 + 80,000 (depreciation) + 20,000 (loss on sale) − 60,000 (receivables) + 30,000 (inventories) + 40,000 (payables) = 610,000.

  3. CSAR 590,000

    The direction of the working capital changes is reversed: 500,000 + 80,000 + 20,000 + 60,000 − 30,000 − 40,000 = 590,000. An increase in receivables is deducted, while a decrease in inventories and an increase in payables are added.

  4. DSAR 530,000

    Depreciation is omitted: 610,000 − 80,000 = 530,000. Depreciation is a non-cash expense that is added back to profit.

Reference: IAS 7 Statement of Cash Flows, paragraphs 18–20

03On 1 January 2025 Al-Ufuq Company bought a 5-year bond with a face value of SAR 1,000,000 and a 6% annual coupon paid each 31 December, for SAR 920,146, giving an effective interest rate of 8%. The bond is held to collect contractual cash flows and is measured at amortised cost. What is the interest income for 2025 and the carrying amount of the bond at 31 December 2025?

Practice question Unit: Cash, financial instruments and receivables

  1. AInterest income SAR 60,000; carrying amount SAR 920,146

    Incorrect: SAR 60,000 is the coupon received. Interest income uses the effective rate on the carrying amount, and the discount does not stay unamortised.

  2. BInterest income SAR 73,612; carrying amount SAR 933,758 ✓ Correct answer

    Correct: 920,146 × 8% = SAR 73,612 interest income. The coupon received is 60,000, so 13,612 of the discount is amortised and the carrying amount becomes 920,146 + 13,612 = SAR 933,758.

  3. CInterest income SAR 80,000; carrying amount SAR 940,146

    Incorrect: SAR 80,000 comes from applying 8% to the face value instead of the carrying amount. The effective rate is applied to the carrying amount.

  4. DInterest income SAR 73,612; carrying amount SAR 993,758

    Incorrect: adding the whole interest income to the carrying amount without deducting the coupon received (SAR 60,000) gives SAR 993,758, which is wrong.

Reference: IFRS 9 Financial Instruments, paragraph 5.4.1 and Appendix A (effective interest method)

04Al-Ufuq Company started the year with 500 units at SAR 40 each, then bought 1,500 units at SAR 48 each, and sold 1,200 units. Under the weighted average formula (periodic system), what is the closing inventory value?

Practice question Unit: Inventories and non-current assets

  1. ASAR 38,400

    This is the first-in, first-out result: 800 × 48 = 38,400, not the weighted average.

  2. BSAR 34,400

    This assumes the latest batches were sold first (500 × 40 + 300 × 48), an assumption that is not permitted.

  3. CSAR 35,200

    This uses the simple average of the two prices (44) instead of the quantity-weighted average: 800 × 44 = 35,200.

  4. DSAR 36,800 ✓ Correct answer

    Correct: total cost 20,000 + 72,000 = 92,000 for 2,000 units gives an average of 46; closing inventory is 800 × 46 = 36,800.

Reference: IAS 2 Inventories, paragraphs 25–27

05A machine of Al-Ufuq Company is classified as held for sale. Its carrying amount is SAR 500,000, its fair value is SAR 460,000, and expected costs to sell are SAR 15,000. What impairment loss is recognised on classification?

Practice question Unit: Inventories and non-current assets

  1. ASAR 40,000

    This compares with fair value alone (500,000 − 460,000) and ignores costs to sell.

  2. BSAR 55,000 ✓ Correct answer

    Correct: measurement is at the lower of carrying amount 500,000 and fair value less costs to sell (460,000 − 15,000 = 445,000), so the loss is 55,000.

  3. CSAR 15,000

    This is only the costs to sell and does not reflect the gap between carrying amount and fair value.

  4. DNo loss

    The carrying amount exceeds fair value less costs to sell, so a loss must be recognised.

Reference: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, paragraphs 15 and 20

06Al-Ufuq Company's lease liability at 1 January 2025 is SAR 397,440, measured at an 8% implicit rate for four annual payments of SAR 120,000 made at the end of each year. The right-of-use asset of SAR 447,440 is depreciated straight-line over the 4-year lease term, with no transfer of ownership. What total expense appears in profit or loss for 2025?

Practice question Unit: Leases, liabilities and equity

  1. ASAR 120,000, an operating rental expense equal to the cash paid

    This is the old operating-lease approach. A lessee now recognizes depreciation and finance cost instead of a single rent expense.

  2. BSAR 131,155: finance cost 31,795 and depreciation 99,360

    Here depreciation was based on the liability (397,440 ÷ 4) rather than the full cost of the right-of-use asset.

  3. CSAR 143,655: finance cost 31,795 and depreciation 111,860 ✓ Correct answer

    Finance cost = 397,440 × 8% = 31,795 (payment at year-end); depreciation = 447,440 ÷ 4 = 111,860; total SAR 143,655.

  4. DSAR 147,655: finance cost 35,795 and depreciation 111,860

    Here finance cost was based on the asset's cost (447,440 × 8%), but it is computed on the liability balance.

Reference: IFRS 16 Leases, paragraphs 31 and 36

07Al-Ufuq Company sells a customer a package for SAR 100,000 comprising equipment (stand-alone selling price SAR 50,000), installation (SAR 30,000) and 12 months of technical support (SAR 45,000). The equipment was delivered and installed in 2025, and support started on 1 July 2025 and is provided evenly. What revenue from the package is recognized in 2025?

Practice question Unit: Revenue, zakat and income taxes

  1. ASAR 77,500

    This deducts half of the support's stand-alone price from the contract price (100,000 − 22,500), without allocating the discount pro rata.

  2. BSAR 64,000

    This recognizes only equipment and installation and omits the six months of support provided in 2025.

  3. CSAR 102,500

    This uses stand-alone prices without allocation: 50,000 + 30,000 + 22,500, which even exceeds the contract price.

  4. DSAR 82,000 ✓ Correct answer

    Total stand-alone prices are 125,000, so equipment gets 40,000, installation 24,000 and support 36,000. 2025 revenue = 40,000 + 24,000 + 36,000 × 6 ÷ 12 = SAR 82,000.

Reference: IFRS 15 Revenue from Contracts with Customers, paragraphs 73–80

08A Saudi manufacturer bought machinery on 1 January 2023 for SAR 1,200,000, with a 10-year life, nil residual value and straight-line depreciation. On 1 January 2025 it revises the remaining life to 4 years and the residual value to SAR 60,000, and changes to the reducing-balance method at 40% a year to reflect the new pattern of use. The rate is applied to the carrying amount at the start of each year without first deducting the residual value, and depreciation stops when the carrying amount reaches the residual value. How are these changes treated, and what is the 2025 depreciation charge?

Practice question Unit: Policies, events and special measurement topics

  1. AAll prospectively as changes in estimates; 2025 depreciation is SAR 384,000 ✓ Correct answer

    Changes in useful life, residual value and depreciation method are all changes in estimates applied prospectively. The carrying amount at 1 January 2025 is 1,200,000 − (2 × 120,000) = SAR 960,000, and under the method stated in the question 2025 depreciation is 960,000 × 40% = SAR 384,000.

  2. BRestate 2023 and 2024 as a change in accounting policy; 2025 depreciation is SAR 240,000

    A change in depreciation method is not a change in accounting policy, so prior years are not restated. SAR 240,000 comes from simply dividing 960,000 by 4.

  3. CLife and residual value prospectively, method retrospectively; 2025 depreciation is SAR 225,000

    A method change is a change in estimate just like a life change, so both are prospective. SAR 225,000 deducts the residual value and divides by 4 as if straight-line: (960,000 − 60,000) ÷ 4.

  4. DAll prospectively as changes in estimates; 2025 depreciation is SAR 360,000

    The prospective treatment is right but the figure is wrong: SAR 360,000 deducts the residual value first ((960,000 − 60,000) × 40%), whereas the question applies the rate to the carrying amount without that deduction; the residual value is only the floor at which depreciation stops.

Reference: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, paragraphs 32–38; IAS 16 Property, Plant and Equipment, paragraphs 51 and 61

09On 1 January 2024, Al-Waha Company grants 50,000 options vesting after 3 years of service, with a grant-date fair value of SAR 10 each. On 1 January 2025 it lowers the exercise price; each option's fair value is SAR 4 just before and SAR 7 just after the repricing. All options are expected to vest. What is the 2025 expense under IFRS 2?

Practice question Unit: Policies, events and special measurement topics

  1. AReplace the original value with SAR 7 per option, spread over the 2 remaining years; 2025 expense is SAR 175,000

    Replacing the original value with the new one is wrong. IFRS 2 keeps the original value and adds only the increase.

  2. BIgnore the repricing and continue the original SAR 10 value over 3 years; 2025 expense is SAR 166,667

    IFRS 2 does not prohibit repricing but prescribes its treatment, and ignoring the modification drops the increase in fair value.

  3. CKeep the original SAR 10 value over 3 years and add the SAR 3 increase over the 2 remaining years; 2025 expense is SAR 241,667 ✓ Correct answer

    When a modification increases fair value, the entity keeps recognizing the original value (500,000 over 3 years = 166,667 a year) and recognizes the increase of 50,000 × (7 − 4) = 150,000 over the remaining vesting period, 75,000 a year. 2025 expense = SAR 241,667.

  4. DRecognize the whole SAR 150,000 increase at once together with the original instalment; 2025 expense is SAR 316,667

    The increase is spread over the remaining vesting period and not recognized at once, so its annual charge is only SAR 75,000.

Reference: IFRS 2 Share-based Payment, paragraphs 26–29 and B42–B44

10On 1 January 2025, Al-Ufuq Company acquired 75% of Al-Jubail Chemicals for SAR 6,000,000. The fair value of Al-Jubail's identifiable net assets is SAR 6,800,000, and the fair value of the 25% non-controlling interest is SAR 1,850,000. What goodwill arises when the non-controlling interest is measured (a) at its share of identifiable net assets and (b) at fair value?

Practice question Unit: Consolidation, business combinations and investments

  1. A(a) SAR 900,000, (b) SAR 1,050,000 ✓ Correct answer

    (a) NCI = 25% × 6,800,000 = 1,700,000, so goodwill = 6,000,000 + 1,700,000 − 6,800,000 = 900,000. (b) Goodwill = 6,000,000 + 1,850,000 − 6,800,000 = SAR 1,050,000.

  2. B(a) SAR 900,000, (b) SAR 150,000

    The figure 150,000 is the difference between the two NCI amounts (1,850,000 − 1,700,000), not goodwill itself.

  3. C(a) SAR 1,050,000, (b) SAR 900,000

    The order is reversed: goodwill is lower under the proportionate method and higher under the fair value method.

  4. D(a) SAR 900,000, (b) SAR 900,000

    The two goodwill figures are equal only if the NCI fair value equals its share of net assets; here it exceeds it by 150,000.

Reference: IFRS 3 Business Combinations, paragraphs 19 and 32

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