Advanced Financial Reporting (F2)

Answer: C. IFRS 15's five-step model: (1) identify the contract with a customer; (2) identify the separate performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; (5) recognise revenue when (or as) each performance obligation is satisfied. The other options scramble the steps, mix in incorrect elements such as 'sign the contract' or 'allocate costs', or omit key steps entirely. The five-step model is central to IFRS 15 and applies consistently across all contracts with customers.

Answer: A. IFRS 10 defines control through three cumulative elements: (1) power over the investee (the ability to direct relevant activities); (2) exposure or rights to variable returns from involvement with the investee; and (3) the ability to use that power to affect the amount of those returns. Legal ownership of more than 50% is a strong indicator but not the sole test — an entity can control another with a smaller interest (through contractual rights or de facto power) or lack control despite majority ownership (if significant veto rights exist). Owning any shares without the three elements is not sufficient for control, and geography is irrelevant.

Answer: D. Ratio analysis uses historical data from financial statements, which reflects past conditions rather than current or future performance — particularly problematic in rapidly changing environments. Ratios can also be distorted by different accounting policies (e.g. different depreciation methods or revaluation approaches), making cross-company comparisons unreliable unless policies are reconciled. A higher ROCE can reflect lower capital investment rather than better management, and comparisons must account for industry norms and capital structure differences. Ratios do not forecast reliably — they describe, not predict.