ACCA Financial Reporting (F7) Practice Exam

What are the two models used for measuring non-current assets?

1. Cost Model and Fair Value Model

2. Cost Model and Revaluation Model

3. Historical Model and Current Model

4. Acquisition Model and Disposal Model

The correct answer is: Cost Model and Revaluation Model

The choice of the Cost Model and Revaluation Model as the two primary methods for measuring non-current assets aligns with International Financial Reporting Standards (IFRS), specifically IAS 16, which deals with Property, Plant, and Equipment. The Cost Model records non-current assets at their acquisition cost, with subsequent depreciation and impairment losses, reflecting an asset's value based on its purchase price adjusted for usage and wear over time. Conversely, the Revaluation Model allows for the periodic revaluation of an asset to its fair value at the date of revaluation, and this revalued amount then becomes the asset's carrying amount. This approach provides a more current valuation of the asset on the balance sheet, reflecting market conditions and the asset's fair value. The other options do not accurately represent the established methods provided in the IFRS framework. Historical and Current Models are not recognized terminologies used in asset valuation under IFRS, similarly, Acquisition and Disposal Models do not refer to measurement models but rather to stages within the asset's lifecycle and accounting treatment on the commencement or derecognition. Thus, the B option accurately captures the official methodologies employed in the measurement of non-current assets.