ACCA Applied Knowledge Practice Test

ACCA Applied Knowledge is the foundation stage for candidates building business, management accounting, and financial accounting fluency before moving into Applied Skills.

Use these 12 original sample questions for initial self-assessment. If ACCA Applied Knowledge is the Finance Prep route you want next, use the Notify me form on this page.

What Applied Knowledge practice should test

• core business, governance, stakeholder, and organizational vocabulary
• management accounting basics such as cost behavior, budgeting, variance thinking, and decision support
• financial accounting recognition, measurement, statements, and basic reporting logic
• choosing the concept that fits the fact pattern rather than memorizing isolated definitions

Sample Exam Questions

These 12 questions are written for ACCA Applied Knowledge foundation reasoning. They are not official ACCA questions; use them to test whether you can apply the idea in a simple business, management-accounting, or financial-accounting context.

Question 1

Topic: business organization

A company separates authorization of supplier payments from preparation of the bank transfer file. What control principle is mainly being used?

• A. Segregation of duties
• B. Price elasticity
• C. Market segmentation
• D. Absorption costing

Best answer: A

Explanation: Separating authorization from payment preparation reduces the chance that one person can initiate and conceal an error or irregular payment. Applied Knowledge questions often test whether you can recognize the practical control concept from a workplace example.

Question 2

Topic: cost behaviour

Rent for a factory remains unchanged while monthly output rises from 8,000 units to 10,000 units within the same capacity range. What happens to rent cost per unit?

• A. It becomes a direct material cost
• B. It decreases because the same fixed cost is spread over more units
• C. It increases in line with output
• D. It disappears from the cost statement

Best answer: B

Explanation: Factory rent is fixed in total within the relevant range. When more units are produced, the fixed cost per unit falls because the same total cost is allocated over more units.

Question 3

Topic: financial accounting

A business receives an electricity bill after year end for power used before year end. What is the best accounting treatment?

• A. Ignore it until cash is paid
• B. Record it only in the next financial year
• C. Accrue the expense in the period when the electricity was used
• D. Treat it as revenue

Best answer: C

Explanation: Accrual accounting records expenses in the period they relate to, not only when cash is paid. The key clue is that the electricity was used before year end.

Question 4

Topic: management information

A sales report shows revenue increasing, but gross margin percentage is falling. What should management investigate first?

• A. Whether sales mix, discounts, or input costs are reducing profitability
• B. Whether the report title is too long
• C. Whether revenue should never be reported
• D. Whether all costs are fixed

Best answer: A

Explanation: Higher revenue does not automatically mean better performance. Falling gross margin may indicate discounting, cost increases, or a shift toward lower-margin products.

Question 5

Topic: ethics

An accounting assistant is asked to delay recording a supplier invoice so that monthly profit looks better. What is the best response?

• A. Delay the invoice because the request came from a senior employee
• B. Record the invoice appropriately and seek guidance or escalate if pressured
• C. Delete the invoice until the supplier asks again
• D. Record the invoice only if cash has been paid

Best answer: B

Explanation: The ethical issue is pressure to misstate the result. The correct response is to follow proper accounting treatment and use the appropriate advice or escalation route.

Question 6

Topic: budgeting

A department builds extra cost into its budget so that the target is easier to achieve. What is this called?

• A. Relevant costing
• B. Irrecoverable debt
• C. Budgetary slack
• D. Depreciation

Best answer: C

Explanation: Budgetary slack means making a budget easier to meet by overstating costs, understating revenue, or otherwise building in a cushion.

Question 7

Topic: financial statements

Which statement best describes a liability?

• A. A residual interest after deducting assets
• B. A cash sale only
• C. An expense that has already been paid
• D. A present obligation expected to result in an outflow of resources

Best answer: D

Explanation: A liability is an obligation of the entity that is expected to require settlement. It is not the same as equity, revenue, or every expense.

Question 8

Topic: relevant cost

A machine was bought last year and cannot be resold. Management is deciding whether to use it for a new order. How should the original purchase cost usually be treated?

• A. It should be included because every historic cost matters
• B. It should be treated as a future variable cost
• C. It should be ignored as a sunk cost for this decision
• D. It should be deducted from sales revenue

Best answer: C

Explanation: The purchase cost has already been incurred and cannot be changed by accepting or rejecting the new order. Relevant costs are future cash flows that change because of the decision.

Question 9

Topic: governance

A board committee reviews financial reporting judgments separately from management. What is the main purpose?

• A. To remove the need for accounting records
• B. To increase oversight and challenge around reporting quality
• C. To set every product price
• D. To approve customer refunds only

Best answer: B

Explanation: Governance structures create oversight, accountability, and challenge. For financial reporting, independent review helps protect reporting quality and confidence.

Question 10

Topic: break-even

A product sells for 80 and has variable cost of 50. Fixed costs are 30,000. What is the break-even volume?

• A. 600 units
• B. 1,600 units
• C. 2,400 units
• D. 1,000 units

Best answer: D

Explanation: Contribution per unit is 30. Break-even volume is fixed costs divided by contribution per unit, so 30,000 divided by 30 equals 1,000 units.

Question 11

Topic: audit trail

A purchase invoice is approved, matched to a purchase order, and then filed with evidence of review. What is this mainly supporting?

• A. An audit trail for the transaction
• B. A lower selling price
• C. A product-life-cycle strategy
• D. A dividend decision

Best answer: A

Explanation: Documentation that shows authorization, matching, and review creates evidence that the transaction was checked and processed through the proper controls.

Question 12

Topic: business economics

A company lowers price in a market where demand is highly price elastic. What is the likely reason?

• A. It expects fixed costs to disappear
• B. It expects customers not to react to price
• C. It expects demand to become unrelated to revenue
• D. It expects quantity demanded to rise proportionately more than the price falls

Best answer: D

Explanation: With elastic demand, customers respond strongly to price changes. A lower price may increase total revenue if the percentage increase in quantity is greater than the percentage price reduction.

Applied Knowledge quick checklist

Related ACCA pages

• Applied Skills
• Strategic Professional
• ACCA qualification updates