Both options are grammatical but the first one is more natural and clear.

Both versions are good.

Many thanks, Caroline! It's an exercise for my kid :) I composed a text for her. It's about a little girl, Pam. And in this text there is a sentence like "My favourite colour is yellow." There are some questions after the text - my daughter must read, translate and answer them. The actual question is about Pam's favourite colour (just to confirm is yellow her favourite colour or not), and I assume the reply like "Yes, it is. Yellow is her favourite colour."). so, as I've understood, in such a case it goes like: 1. Is yellow her favourite colour? - "Yes, it is. Yellow is her favourite colour." And it seems like if the question goes like this: 2. Is your favourite colour yellow? the answer should be "Yes, it's yellow." Am I right about both situations, 1 and 2? Thank you!

As Irene and Greg have said, both are fine. I would be more likely to use "Is yellow your favourite colour?" if we were already talking about yellow, or if they were wearing a lot of yellow or had a lot of yellow things. I would be more likely to use "Is your favourite colour yellow?" If I were trying to guess their favourite colour at random. E.g. "Wow, you're wearing a lot of yellow, is yellow your favourite colour?" vs "Guess some facts about me!" "Hmm, okay... is your favourite colour yellow? No? Okay then, is it blue?" As Irene says, I think "Is yellow your favourite colour?" would be the more common construction.