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Sample ICAP CAF Practice Questions

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1Under IAS 16 Property, Plant and Equipment, an entity acquired heavy machinery for PKR 12,000,000 on January 1, 2024, with an estimated useful life of 10 years and nil residual value. On January 1, 2026, after two years of straight-line depreciation, the entity revalued the machinery to its fair value of PKR 11,200,000. What is the revaluation surplus recognized in Other Comprehensive Income (OCI) on January 1, 2026?
A.PKR 800,000
B.PKR 1,600,000
C.PKR 2,400,000
D.PKR 1,200,000
Explanation: Annual straight-line depreciation is PKR 12,000,000 / 10 = PKR 1,200,000 per year. After 2 years, accumulated depreciation is PKR 2,400,000, leaving a carrying amount of PKR 9,600,000. The revaluation surplus recognized in OCI is the difference between fair value and carrying amount: PKR 11,200,000 - PKR 9,600,000 = PKR 1,600,000.
2According to IAS 2 Inventories, which of the following costs must be excluded from the cost of inventories and recognized as an expense in the period in which it is incurred?
A.Non-recoverable import duties and customs tariffs paid on raw materials
B.Direct labor costs incurred in bringing the product to its present location and condition
C.Abnormal amounts of wasted materials, labor, or other production costs
D.Freight-in transportation charges directly attributable to raw material acquisition
Explanation: IAS 2 paragraph 16 explicitly states that abnormal amounts of wasted materials, labor, or other production costs, along with storage costs (unless necessary in production) and administrative overheads, must be expensed in profit or loss. Import duties, direct labor, and freight-in are all necessary acquisition or conversion costs that are capitalized into inventory.
3On December 31, 2025, Tariq Textiles has 5,000 finished suits in stock. The original manufacturing cost was PKR 4,200 per suit. Due to fashion changes, the expected selling price is PKR 4,500 per suit, but Tariq must incur selling and repackaging commissions of PKR 600 per suit. At what total valuation should Tariq Textiles report this inventory on its statement of financial position under IAS 2?
A.PKR 21,000,000
B.PKR 22,500,000
C.PKR 19,500,000
D.PKR 18,000,000
Explanation: Under IAS 2, inventories must be measured at the lower of cost and net realizable value (NRV). The cost is PKR 4,200 per suit, while NRV is estimated selling price minus costs to sell: PKR 4,500 - PKR 600 = PKR 3,900 per suit. Since NRV (PKR 3,900) is lower than cost (PKR 4,200), total inventory valuation is 5,000 suits x PKR 3,900 = PKR 19,500,000.
4Construction of a qualifying plant was active from March 1 to December 31, 2025. General borrowings have a weighted average borrowing rate of 12%; actual borrowing costs exceed the capitalization calculated below. Expenditures were PKR 10,000,000 on March 1 and PKR 6,000,000 on September 1. Under IAS 23, what borrowing costs are capitalized in 2025?
A.PKR 1,240,000
B.PKR 1,920,000
C.PKR 1,440,000
D.PKR 1,600,000
Explanation: Capitalization applies to expenditures incurred on the qualifying asset for the period active construction occurs. For the March 1 expenditure of PKR 10,000,000: 10 months to December 31 = PKR 10,000,000 x 12% x (10/12) = PKR 1,000,000. For the September 1 expenditure of PKR 6,000,000: 4 months = PKR 6,000,000 x 12% x (4/12) = PKR 240,000. Total borrowing costs capitalized = PKR 1,000,000 + PKR 240,000 = PKR 1,240,000.
5An enterprise receives a qualifying government grant of PKR 4,000,000 on January 1, 2024, for solar equipment costing PKR 20,000,000. The equipment is available for use immediately, has nil residual value and a five-year straight-line useful life. Under IAS 20's deferred income method, what is the net equipment and grant expense for 2024?
A.Net expense of PKR 3,200,000
B.Net expense of PKR 4,000,000
C.Net expense of PKR 2,400,000
D.Net income of PKR 800,000
Explanation: Under the deferred income method, annual depreciation expense on the equipment is PKR 20,000,000 / 5 = PKR 4,000,000. In addition, the deferred grant income is amortized to profit or loss over the asset's useful life at PKR 4,000,000 / 5 = PKR 800,000 per year. The net impact on profit or loss is an expense of PKR 4,000,000 - PKR 800,000 grant income = PKR 3,200,000 net expense.
6Which of the following conditions must be met under IAS 37 Provisions, Contingent Liabilities and Contingent Assets before an entity recognizes a provision on its balance sheet?
A.The obligation is possible, and the outflow of resources is remotely probable
B.A present obligation from a past event exists, an outflow of resources is probable, and a reliable estimate can be made
C.Management has formally passed a board resolution intending to incur future operational costs
D.The counterparty has obtained a final enforceable court decree against the entity
Explanation: IAS 37 paragraph 14 requires three criteria for recognizing a provision: (1) an entity has a present legal or constructive obligation as a result of a past event, (2) it is probable (more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and (3) a reliable estimate can be made of the amount. If any condition is missing, no provision is recognized.
7On December 31, 2025, Alpha Ltd tested a production line for impairment. The carrying amount of the production line is PKR 28,000,000. Its fair value less costs of disposal is PKR 22,000,000, and its value in use (discounted future cash flows) is PKR 25,000,000. Under IAS 36 Impairment of Assets, what is the impairment loss to be recognized in profit or loss?
A.PKR 6,000,000
B.PKR 3,000,000
C.PKR 0 (no impairment)
D.PKR 2,000,000
Explanation: Under IAS 36, the recoverable amount of an asset is the higher of its fair value less costs of disposal (PKR 22,000,000) and its value in use (PKR 25,000,000). Thus, recoverable amount is PKR 25,000,000. The impairment loss is the excess of carrying amount over recoverable amount: PKR 28,000,000 - PKR 25,000,000 = PKR 3,000,000.
8Under IAS 38 Intangible Assets, how should an enterprise account for expenditures incurred during the research phase of an internal project to develop a new commercial chemical compound?
A.Capitalize as an intangible asset once technical feasibility is demonstrated
B.Recognize as an expense in profit or loss when incurred
C.Defer on the balance sheet until the product reaches commercial launch
D.Charge directly to equity through other comprehensive income
Explanation: IAS 38 paragraph 54 explicitly prohibits capitalizing research expenditure, mandating that all research costs be expensed in profit or loss when incurred. Only development expenditures that satisfy all six specific capitalization criteria (PIRATE: Probable economic benefits, Intention to complete, Resources available, Ability to use/sell, Technical feasibility, Expenditure measurability) can be recognized as intangible assets.
9An entity entered into a contract to sell a specialized generator for PKR 5,000,000, which includes a 2-year routine maintenance and servicing package. Stand-alone selling prices are PKR 4,800,000 for the generator and PKR 1,200,000 for the 2-year maintenance package. Under IFRS 15 Revenue from Contracts with Customers, what transaction price should be allocated to the generator performance obligation?
A.PKR 4,800,000
B.PKR 4,000,000
C.PKR 3,800,000
D.PKR 4,200,000
Explanation: Under IFRS 15, the transaction price is allocated to separate performance obligations in proportion to relative stand-alone selling prices. Total stand-alone price = PKR 4,800,000 + PKR 1,200,000 = PKR 6,000,000. Generator proportion = 4,800,000 / 6,000,000 = 80%. Transaction price allocated to generator = 80% x PKR 5,000,000 = PKR 4,000,000.
10Under IFRS 16 Leases, on January 1, 2025, Lessee Ltd enters into a 4-year lease for warehouse equipment with annual lease payments of PKR 1,000,000 payable in arrears at each year-end. The interest rate implicit in the lease is 10% per annum (present value annuity factor for 4 years at 10% = 3.1699). Initial direct costs incurred by Lessee Ltd are PKR 150,000. What is the initial carrying amount of the right-of-use (ROU) asset at lease commencement?
A.PKR 3,169,900
B.PKR 3,319,900
C.PKR 3,019,900
D.PKR 4,150,000
Explanation: Under IFRS 16 paragraph 24, the cost of the right-of-use asset comprises the initial measurement of the lease liability plus any initial direct costs incurred by the lessee. Lease liability = PKR 1,000,000 x 3.1699 = PKR 3,169,900. ROU asset = PKR 3,169,900 + PKR 150,000 = PKR 3,319,900.

About the ICAP CAF Exam

Independent practice for ICAP CAF topics. This English-language MCQ study adaptation is not an official translation or format simulation and does not substitute for written answers, hands-on assessments or practical training.

Exam sponsor: Institute of Chartered Accountants of Pakistan (ICAP). The requirements and fees below concern the certification or admission exam, separate from our free practice resources.

Assessment

Question count varies by module

Time Limit

Autumn 2026: 3h15 including reading time

Passing Score

50% per subject

Exam / Certification Fees

PKR 7,000 first paper + PKR 4,600 each additional paper per sitting (2026–27)

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Fees, eligibility, and exam policies can change. Confirm them with the exam sponsor before applying or paying.

Official sources

Our practice resources: topics covered

We aim to reflect publicly available exam outlines and topic information in our study resources. Coverage, format, and difficulty may differ from the actual exam, and we cannot guarantee that every detail is accurate or current. Confirm exam requirements, fees, and policies with the official exam sponsor.

Separate papers

CAF 1 and 6: Financial Accounting and Reporting; Corporate Reporting

Recognition, measurement, financial statements and groups.

Separate paper

CAF 2: Taxation Principles and Compliance

Direct and indirect tax and compliance.

Separate paper

CAF 3: Data, Systems and Risks

Data, analytics, systems, controls and risk.

Separate paper

CAF 4: Business Law Dynamics

Contracts, commercial instruments and company law.

Separate paper

CAF 5: Management Accounting

Costing, budgets, variances and decisions.

Separate paper

CAF 7: Business Insights and Analysis

Finance, working capital, risk, performance and sustainability.

Separate paper

CAF 8: Audit and Assurance Essentials

Planning, ethics, controls, evidence and reporting.

Preparing for the ICAP CAF Exam

What You Need to Know

  • Passing score: 50% per subject
  • Assessment: Question count varies by module
  • Time limit: Autumn 2026: 3h15 including reading time
  • Exam / certification fees: PKR 7,000 first paper + PKR 4,600 each additional paper per sitting (2026–27) Official sources

Using Our Practice Resources

  • Work through all 124 available questions
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ICAP CAF: Suggested Study Strategy

1Study each current paper rather than relying on pooled question proportions.
2Write full workings and audit conclusions using official specimen requirements.
3Check the examinable-law cutoff; historical or stipulated rates are not universal current rates.

Frequently Asked Questions

Is this an official CAF paper?

No. These independent English MCQs develop topic knowledge; practice full written responses and ICAP's current software separately.

When are CAF examinations held?

The 2026 schedule includes March and August. The announced cycle changes to August and February from August 2026; check the admission notice.