Question 1 CC6-2 What basis does the International Accounting Standards Board use in formulating its IFRS?
Detailed rules to govern accounting practice
A framework of accounting principles
Typical tax laws of western nations
Exceptions or unusual circumstances that require special attention
The following information was taken from the fixed asset records of HB Ltd as of
December 31, 2010:
Carrying value = € 100,000
Selling price= € 85,000
cost of disposal= € 3,000
expected future cash flows = € 75,000
present value of expected future cash flows = € 63,000 a. Using IAS 36, what is the amount of Impairment Loss?
b. What is the amount of Impairment Loss under U.S. GAAP? Question 3 Which of the following is true about the IASB standards on Cash Flow Statements? a. Cash flow statements are not required under the IASB standards. b. Operating cash flows must be determined using the “direct method.” c. Operating cash flows may be combined with financing cash flows. d. IAS 7 requires essentially the same information in the cash flow statement as U.S. GAAP. Question 4 Foreign exchange risk arises when:
a. business transactions are denominated in foreign currencies. b. sales are made to customers in a foreign country. c. goods or services are purchased from suppliers in a foreign country. d. accounting reports are prepared in a foreign currency. Question 5 Which of the following statements is true about the IASB's approach to accounting standard setting?
The IASB approach is very similar to the rules-oriented basis favored by the FASB in the
b. The IASB uses a principles-based approach to standards formulation. c. The IASB pronouncements have been called a “cookbook” of accounting standards. d.
The Sarbanes-Oxley Act requires the FASB to move toward the approach for standard
setting used by the IASB. Question 6 cc5-5 Which of the following inventory valuation methods commonly used in the U.S. is NOT allowed
under IAS 2 (Inventories)? a. LIFO b. FIFO c. Weighted Average d. Retail inventory method Question 7 If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:
a. annual revaluations must be performed on each class of assets. b.
it must update the valuation so that the balance sheet represents fair value on the
balance sheet date.
c. appraisals must be performed by an official of the IASB. d. the depreciated replacement cost must be used as the fair value of the fixed asset. Question 8 K Company acquired 80 percent of the outstanding shares of Duo Company
by paying $420,000 in cash. The fair value of Duo’s identifiable assets is
$630,000, and the liabilities assumed by K Co. in this business combination
are $205,000. a. Please calculate the total amount of goodwill on the B/S this year.
Also indicate the amount of goodwill that belongs to
the noncontrolling interest account on B/S.
b. K Co. must conduct an impairment test of the goodwill related to the
acquisition of Duo. The assets of Duo are the smallest group of assets that
generate cash inflows, and it is a separate cash generating unit. K. Co
estimated the following items:
Fair value less costs to sell is $ 370,000 Present value of future cash flows is $350,000 Please calculate the impairment loss that should be recorded on I/S. Question 9 How does IAS 38 (Intangible Assets) differ from U.S. GAAP with respect to development
U.S. GAAP does not allow capitalization of development costs, whereas IAS 38
allows capitalization of these costs.
U.S. GAAP requires capitalization of development costs, whereas IAS 38 makes
capitalization of these costs optional.
U.S. GAAP treats development costs as part of “Goodwill” whereas IAS 38
treats these costs as an intangible asset. d.
U.S. GAAP requires expensing of all development costs and IAS 38 requires
capitalizing all development costs. Question 10 According to IAS 16, a decrease in the carrying amount of a fixed asset that is identified on
an asset's first revaluation should be recorded as:
a. an expense on the Income Statement. b. a prior period adjustment to Retained Earnings. c. a credit to Revaluation Surplus. d. a debit to Revaluation Surplus. Question 11
The following inventory information was taken from the records of KP Inc.:
Historical cost= $12,000
Replacement cost= $7,000
Expected selling price= $9,000
Expected selling cost= $500
Normal profit margin is 10% of price.
Please show your work.
a. Under IAS 2, what should the Balance Sheet report for Inventory?
b. Assume that subsequent to your adjustment the expected selling price increases to $13,000. (All the rest of the facts are the same.) What adjustment to inventory should be made under IAS 2 after this event? Question 12 How does IAS 34 (Interim Financial Reporting) differ from U.S. GAAP? 1.
full year. year. U.S. GAAP takes the position that interim periods are an integral part of the 2. U.S. GAAP is the same as IAS 34. 3. U.S. GAAP has no guidance for interim financial reporting. 4. U.S. GAAP requires that an interim period be projected pro rata for the entire Question 13 How does the definition of asset impairment differ between IAS 36 and U.S. GAAP? a.
36 does. U.S. GAAP does not consider selling price in determining impairment, but IAS b.
U.S. GAAP considers cash flows in assessing value of continued use, but does
not discount them, whereas IAS 36 requires discounting in assessing asset impairment. c. Asset impairment is more likely to occur under IAS 36 than under U.S. GAAP. d. All of the above are differences between IAS 36 and U.S. GAAP Question 14 The accounting standards in code law countries tend to be:
a. very detailed. b. formulated by organizations such as the FASB. c. stated broadly without much guidance on accounting procedures. d. very conservative. Question 15 When a patent or trademark is acquired in a business combination, what does IAS 38 say
about recording these intangibles?
If they had not been previously recorded as separate assets by the acquired
company, they should always be recorded as “Goodwill” on the balance sheet of the
company acquiring them.
The cost of the intangibles should be expensed by the acquiring company on
the merger date.
is indefinite. They should be recorded as separate intangible assets only if their useful life d.
They should be recorded as separate intangible assets if their fair value can
be reliably measured. Question 16 What group is primarily responsible for the creation of International Financial Reporting
Standards (IFRS)? a. Financial Accounting Standards Board (FASB) b. International Forum on Accountancy Development (IFAD) c. International Federation of Accountants (IFA) d. International Accounting Standards Board (IASB) Question 17 Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling
price subsequently increases? a.
No adjustment is necessary. Once inventory is written down, it cannot be
increased under IASB standards b. It should be sold at the replacement cost. c.
The inventory write-down should be reversed to bring it in line with the new
net realizable value d.
Recovery of inventory loss should be debited to reflect the increase in
inventory value. Question 18 How should we recognize the difference between the value of a receivable in a foreign
currency at the time it was recorded and the time the cash was received? a. As a decrease in stockholders' equity b. As an adjustment to sales revenue c. As a prior period adjustment d. As a sales allowance Question 19 If most of a country's business financing comes from families, banks, and the government
what should we expect in terms of information disclosure to the public? a. Relatively little because the public isn't a major factor b.
A great deal of disclosure because it will be the only way for interested parties
to learn about the company c. Complete openness of accounting records d. No disclosure at all