Some ICAG questions test one standard in depth. Others — like Question 2 of the November 2025 Financial Reporting paper — test whether you can move fluidly between four different standards in the space of one page. The Chief Examiner’s own report confirms this question is precisely where a considerable number of candidates lost their footing.
The Question
Five short, independent scenarios: a licence facing imminent withdrawal by the licensor; out-of-date inventory that can no longer be sold; a mining restoration provision that needs updating a year later; three intangible-asset scenarios for a record label; and a request to distinguish functional currency from presentation currency under IAS 21. Total: 20 marks.
The Full Worked Answer
The licence: because withdrawal was confirmed for immediately after the year end, the licence’s recoverable amount is zero. Write it off in full. The fact that tax allowances are unaffected is a distractor — tax treatment does not change the accounting answer.
Inventories: net realisable value can never be recorded as negative. Where goods will be disposed of for no income, NRV is zero, and the full cost is written down.
The provision: this is a straightforward unwinding of discount, not a full remeasurement — opening balance × the original discount rate, charged to finance costs.
The three intangibles: a purchased distribution right is capitalised and amortised over its useful life. An internally generated brand can never be recognised on the balance sheet under IAS 38, regardless of its estimated fair value — there is no active market in identical brands. Market research spend must always be expensed as incurred.
IAS 21: functional currency is the currency of the entity’s primary economic environment; presentation currency is simply the currency the financial statements are presented in — the two need not match.
Exam tip: Whenever a question describes a company wanting to put an internally generated intangible — a brand, reputation, or similar — onto its balance sheet, the answer is almost always “no, under IAS 38.” Examiners build this trap repeatedly because it is one of the most commonly misapplied rules in financial reporting.
Marking Scheme and Examiner Comments
The November 2025 Chief Examiner’s Report stated directly: “A considerable number of candidates could not apply knowledge in IAS 37, IAS 38 and IAS 21 to answer the questions thereby affecting their performance greatly in Question 2.”
Conclusion
This question rewards candidates who can recognise, in seconds, which categorical IFRS rule each short scenario is testing — recoverability, the NRV floor, discount unwinding, or the internally-generated-intangible prohibition — and apply it directly.
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