CPA PEP Practice Test (Core 1 & 2)
Free · 140 Questions.

Question 1

Under IFRS 15 (Revenue from Contracts with Customers), what is the mandatory 5-step model required to recognize revenue?

• A. 1. Deliver goods, 2. Credit sales revenue, 3. Debit inventory, 4. Calculate cost of sales, 5. File corporate tax returns.
• B. 1. Identify contract, 2. Identify performance obligations, 3. Determine transaction price, 4. Allocate transaction price, 5. Recognize revenue when obligations are satisfied.
• C. 1. Receive customer deposit, 2. Ship inventory items, 3. Issue sales invoice, 4. Record accounts receivable, 5. Settle sales taxes.
• D. 1. Sign customer contract, 2. Accrue warranty expenses, 3. Estimate bad debt allowance, 4. Collect accounts receivable, 5. Recognize gross margin.

Explanation: IFRS 15 establishes the 5-step framework: 1. Identify contract, 2. Identify performance obligations, 3. Determine transaction price, 4. Allocate price, 5. Recognize revenue as/when obligations are satisfied.

Question 2

How does the accounting treatment for operating leases differ for a lessee under IFRS 16 versus ASPE 3065?

• A. Under both IFRS 16 and ASPE 3065, lessees recognize a right-of-use asset and a lease liability for leases longer than 12 months.
• B. Under IFRS 16, lessees recognize a Right-of-Use asset and lease liability; under ASPE 3065, operating leases remain off-balance sheet.
• C. Under IFRS 16, lessees classify each lease as operating or finance, while ASPE 3065 puts all leases on the balance sheet as capital leases.
• D. Under IFRS 16, payments on all leases are expensed straight-line, while ASPE 3065 requires a right-of-use asset and lease liability for operating leases.

Explanation: IFRS 16 eliminates the operating vs finance lease distinction for lessees (requiring ROU asset and lease liability capitalization), whereas ASPE 3065 retains the dual classification model where operating leases are expensed straight-line off-balance sheet.

Question 3

Under ASPE 3400 (Revenue), when is revenue from the sale of goods recognized?

• A. When seller transfers significant risks and rewards of ownership, measurement and collectibility are assured, and performance is completed.
• B. When the customer places the order and the sales order is approved, because the price has been agreed at that date.
• C. When the invoice is issued to the customer, whether or not the risks and rewards of ownership have passed to the buyer.
• D. When cash is received from the customer, because ASPE 3400 requires the cash basis for revenue from the sale of goods.

Explanation: Under ASPE 3400, revenue is recognized when risks and rewards of ownership are transferred, the buyer has taken delivery/performance is achieved, and consideration is measurable and collectibility is reasonably assured.

Question 4

Under IAS 36 / ASPE 3063 (Impairment of Long-Lived Assets), how is an impairment loss calculated for Property, Plant, and Equipment under IFRS?

• A. The excess of carrying amount over recoverable amount, which is the higher of fair value less costs of disposal and value in use.
• B. The difference between replacement cost of Property, Plant, and Equipment and historical accumulated straight-line depreciation charges.
• C. A mandatory flat statutory write-down of 20% of net book value applied across all Property, Plant, and Equipment asset classes annually.
• D. The excess of original historical purchase cost over undiscounted future cash flows generated by Property, Plant, and Equipment assets.

Explanation: Under IFRS (IAS 36), impairment exists when carrying amount exceeds recoverable amount, where Recoverable Amount = Higher of [Fair Value less Costs of Disposal, Value in Use (discounted cash flows)].

Question 5

How does the impairment model for long-lived assets under ASPE 3063 differ from IFRS (IAS 36)?

• A. ASPE tests recoverability against discounted cash flows in a single step and measures the loss as carrying amount minus value in use.
• B. ASPE uses a 2-step model, but Step 2 measures the loss against recoverable amount, the higher of fair value less costs of disposal and value in use.
• C. ASPE uses the same one-step test as IAS 36 but permits impairment losses to be reversed when circumstances improve.
• D. ASPE uses a 2-step model: Step 1 tests undiscounted cash flow recoverability; Step 2 measures loss as carrying value minus fair value.

Explanation: ASPE 3063 uses a 2-step approach: 1. Undiscounted cash flow recoverability test. 2. Impairment measured as Carrying Value - Fair Value. Under ASPE, impairment reversals for PP&E are never permitted.