ACCA Strategic Business Reporting (SBR) Practice Exam

What is required under IFRS 2 when a company receives goods or services?

1. Recognition of a liability only

2. Recognition of an expense and equity

3. Recognition of an asset only

4. Recognition of equity or liability depending on the settlement type

The correct answer is: Recognition of equity or liability depending on the settlement type

Under IFRS 2, when a company receives goods or services in exchange for equity instruments or cash, it is necessary to recognize the appropriate financial element based on the type of settlement involved. If the transaction is settled with equity instruments (such as shares), the company recognizes an increase in equity. Conversely, if the settlement is in cash or other liabilities, the company recognizes a liability. This framework allows for flexibility in how a company compensates for the goods or services received, accurately reflecting the financial impact on the entity's balance sheet. Additionally, the classification of the transaction as either an equity or liability affects how it is reported and subsequently measured in the financial statements, ensuring that users of the financial statements have a clear understanding of the company's obligations and equity structure. This dual recognition approach aligns with IFRS's principles of providing relevant and faithfully represented information.