ACCA Financial Reporting (F7) Practice Exam

What is the main purpose of IAS 36?

1. To define accounting periods

2. To address impairment of assets

3. To set guidelines for revenue recognition

4. To dictate the treatment of provisions

The correct answer is: To address impairment of assets

The main purpose of IAS 36 is to address impairment of assets, which is critical for ensuring that an entity's assets are not carried on the balance sheet at more than their recoverable amount. The standard requires entities to assess whether there are any indications that their assets may be impaired, and if such indications exist, to perform an impairment test. This involves estimating the recoverable amount of an asset, which is the higher of its fair value less costs to sell and its value in use. By focusing on impairment, IAS 36 ensures that financial statements reflect a more accurate picture of an entity's financial position. This helps stakeholders make informed decisions by providing transparency about the carrying amounts of assets and the circumstances under which those amounts might need to be adjusted downward. The emphasis on impairment serves to protect users of financial statements from overvalued assets, thereby enhancing the reliability and relevance of financial reporting. The other choices, while relevant in their contexts, do not pertain to the main purpose of IAS 36. Defining accounting periods relates to time frames for financial reporting, guidelines for revenue recognition involve principles guiding how and when revenue is recognized, and treatment of provisions concerns liabilities and contingent scenarios. Each of these is governed by different standards and does not encompass the