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CAF-1 Financial Accounting and Reporting · Spring 2026

Q1: Multiple-choice questions

10 marksMCQPass rate 72%

Ten one-mark MCQs: capital maintenance and measurement bases, incomplete-records profit and inventory loss, depreciation changes and components, grant repayment, bearer plants, redeemable preference shares and profit vs cash.

Areas: (i) Conceptual and regulatory framework (1) · (ii) Conceptual and regulatory framework (1) · (iii) Incomplete records (1) · (iv) Incomplete records (1) · (v) Property, plant and equipment (IAS 16) (1) · (vi) Property, plant and equipment (IAS 16) (1) · (vii) Government grants (IAS 20) (1) · (viii) Agriculture (IAS 41) (1) · (ix) Equity transactions and SOCE (1) · (x) Statement of cash flows (IAS 7) (1)

Read the question first

We don't reproduce ICAP's question. Open it in the official PDF, attempt it, then use this walkthrough.

Q1 in the official paper (p. 1) Official suggested answer Suggested answers and marking plans sit in ICAP's student area (CRN login required).Examiners' comments on Q1

How to approach it

  1. Do the MCQ block first but cap it at about 18 minutes (10 marks of a 180-minute paper).
  2. For calculation items, work the number on the rough page before looking at the options; distractors are built from the usual slips.
  3. For theory items, translate each option into 'which standard and which paragraph idea' and eliminate the ones that belong to another standard.
  4. Mark answers on the first page of the script as instructed; an unmarked MCQ scores nothing.

Key rules to apply

  • Net assets method: profit = closing net assets − opening net assets + drawings − capital introduced.
  • A revised residual value or useful life is a change in estimate: spread the remaining depreciable amount over the remaining life.
  • Significant components with different lives are depreciated separately (IAS 16 component approach).
  • Repayment of a government grant is a change in accounting estimate under IAS 20, applied prospectively.
  • Bearer plants are IAS 16 assets; produce growing on them stays in IAS 41.
  • A preference share the issuer must redeem is a financial liability under IAS 32, whatever its legal name.

Common mistakes

Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.

  • Mixing up which capital-introduced and drawings adjustments add and which subtract in the net assets method.
  • Recalculating depreciation from the original cost after a change in estimate instead of from the carrying amount.
  • Treating every 'share' as equity. Look at whether the issuer can avoid paying cash.

Similar question with worked solution

Written by us with our own numbers; it tests the same skills as Q1 without copying it.

Original practice question

Profit from incomplete records

A sole trader kept no ledger. At 1 January 2025 assets were Rs 650,000 and liabilities Rs 150,000. At 31 December 2025 assets were Rs 820,000 and liabilities Rs 190,000.

During the year the owner withdrew Rs 90,000 and introduced Rs 40,000 of new capital.

Required: Calculate profit for 2025.

Worked solution

WorkingRs
Closing net assets (820,000 − 190,000)630,000
Less opening net assets (650,000 − 150,000)(500,000)
Increase in net assets130,000
Add back drawings90,000
Less capital introduced(40,000)
Profit for the year180,000

Answer: Profit = Rs 180,000.

Keep practising

Chapter MCQsConceptual and regulatory frameworkChapter MCQsIncomplete recordsChapter MCQsProperty, plant and equipment (IAS 16)Chapter MCQsGovernment grants (IAS 20)Chapter MCQsAgriculture (IAS 41)Chapter MCQsEquity transactions and SOCEChapter MCQsStatement of cash flows (IAS 7)Standard summaryProperty, plant and equipment (IAS 16)Standard summaryGovernment grants (IAS 20)Standard summaryAgriculture (IAS 41)Standard summaryStatement of cash flows (IAS 7)Topical indexCAF-1 topic × sitting matrixSitting analysisCAF-1 Spring 2026

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