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Sample SAICA APC Practice Questions
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1A listed entity in South Africa acquires a 75% interest in Subsidiary B for R150 million cash. At acquisition date, Subsidiary B's identifiable net assets have a fair value of R160 million. NCI is measured using the proportionate share method under IFRS 3. What is the goodwill recognized in the consolidated financial statements?
A.R30 million
B.R40 million
C.R10 million
D.R70 million
Explanation: Under IFRS 3 Business Combinations, Goodwill = Consideration transferred + NCI value - Fair value of net identifiable assets. Consideration transferred = R150 million. NCI at proportionate share = 25% × R160 million = R40 million. Total combined value = R150m + R40m = R190 million. Subtracting fair value of net assets (R160 million) yields Goodwill of R30 million.
2A manufacturing company sells a specialized machine for R5 000 000 with a 2-year free maintenance service contract included. Standalone selling price of the machine is R4 800 000 and standalone selling price of the 2-year maintenance contract is R1 200 000. Under IFRS 15 Revenue from Contracts with Customers, how much revenue should be allocated to the machine performance obligation?
A.R5 000 000
B.R4 000 000
C.R4 800 000
D.R1 000 000
Explanation: Under IFRS 15, transaction price (R5 000 000) is allocated based on relative standalone selling prices. Total standalone prices = R4 800 000 + R1 200 000 = R6 000 000. Allocation ratio for machine = R4.8m / R6.0m = 80%. Machine revenue = 80% × R5 000 000 = R4 000 000. The remaining R1 000 000 (20%) is deferred and recognized over the 2-year service period.
3Under ISA 315 (Revised), what is the primary purpose of performing risk assessment procedures during audit planning?
A.To obtain absolute assurance that no fraud exists in the financial statements
B.To identify and assess the risks of material misstatement at the financial statement and assertion levels
C.To issue an audit opinion before fieldwork begins
D.To calculate the final tax liability for SARS filing
Explanation: ISA 315 (Revised 2019) mandates risk assessment procedures to identify and assess risks of material misstatement (RMM) due to fraud or error at both the overall financial statement level and relevant assertion levels, providing a basis for designing audit procedures.
4An auditor determines overall materiality for a listed retail company at R10 000 000 based on 5% of profit before tax. If performance materiality is set at 75% of overall materiality, what is performance materiality?
A.R2 500 000
B.R7 500 000
C.R10 000 000
D.R13 333 333
Explanation: Under ISA 320, performance materiality is set below overall materiality to reduce to an appropriately low level the probability that uncorrected misstatements exceed financial statement materiality. Performance materiality = 75% × R10 000 000 = R7 500 000.
5Under the SAICA Code of Professional Conduct, what fundamental principle is threatened when an audit partner accepts a expensive luxury holiday gift from a major audit client's CEO?
A.Self-interest threat and familiarity threat to Objectivity and Integrity
B.Advocacy threat to Confidentiality
C.Intimidation threat to Professional Competence
D.No threat exists if the gift is acknowledged in writing
Explanation: Accepting lavish gifts or hospitality from an audit client creates significant self-interest and familiarity threats to objectivity and professional independence. Under Section 340 of the SAICA Code, auditors must not accept gifts unless trivial and inconsequential.
6Company A in South Africa incurs R1 000 000 in qualifying research expenditure and R2 000 000 in development expenditure for an internal software platform during the year. Under IAS 38 Intangible Assets, research meets no capitalization criteria, whereas all development criteria under IAS 38.57 are met. What amount is capitalized as an intangible asset?
A.R3 000 000
B.R2 000 000
C.R1 000 000
D.R0
Explanation: Under IAS 38 Intangible Assets, research costs (R1 000 000) must be expensed in profit or loss as incurred. Development costs (R2 000 000) that satisfy all technical and financial feasibility criteria under IAS 38.57 must be capitalized as intangible assets.
7A South African company enters into a 5-year lease for an office building requiring annual payments of R500 000 at year-end. The incremental borrowing rate is 10%. Present value factor for a 5-year annuity at 10% is 3.7908. Under IFRS 16 Leases, what is the initial Right-of-Use (ROU) Asset recognized?
A.R2 500 000
B.R1 895 400
C.R500 000
D.R2 000 000
Explanation: Under IFRS 16, initial ROU Asset = Present Value of lease payments = R500 000 × 3.7908 = R1 895 400. Undiscounted lease payments (R500 000 × 5 = R2 500 000) cannot be used as initial balance sheet recognition.
8A South African company has profit before tax of R10 000 000. It incurs R500 000 in non-deductible entertainment expenses and receives R300 000 in tax-exempt dividend income. Corporate income tax rate is 27%. What is the current tax expense for the year?
A.R2 700 000
B.R2 754 000
C.R2 646 000
D.R2 835 000
Explanation: Taxable Income = Accounting Profit (R10 000 000) + Non-deductible expenses (R500 000) - Exempt dividends (R300 000) = R10 200 000. Current Tax Expense = 27% × R10 200 000 = R2 754 000.
9Under Corporate Finance theory and WACC calculation, a SAICA candidate evaluates a company with Equity market value of R60m, Debt market value of R40m, Cost of Equity of 14%, pre-tax Cost of Debt of 10%, and tax rate of 27%. What is the weighted average cost of capital (WACC)?
A.12.40%
B.11.32%
C.12.00%
D.10.85%
Explanation: Weight of Equity (We) = 60/100 = 0.60; Weight of Debt (Wd) = 40/100 = 0.40. After-tax Cost of Debt = 10% × (1 - 0.27) = 7.30%. WACC = (0.60 × 14%) + (0.40 × 7.30%) = 8.40% + 2.92% = 11.32%.
10Under ISA 570 (Revised) Going Concern, what is the auditor's reporting duty when management prepares financial statements on a going concern basis, but material uncertainty exists that is adequately disclosed in Note 34 of the financial statements?
A.Issue an adverse opinion
B.Issue an unmodified opinion with a separate 'Material Uncertainty Related to Going Concern' section in the audit report referencing Note 34
C.Issue a disclaimer of opinion
D.Omit all reference to going concern to avoid market panic
Explanation: Under ISA 570.19, if adequate disclosure is made in the financial statements regarding a material uncertainty relating to going concern, the auditor expresses an unmodified opinion and includes a dedicated section titled 'Material Uncertainty Related to Going Concern' drawing attention to the disclosure note.
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