Chap 005 [PDF]

Zitiervorschau

‫ عالء محسن شحم‬[email protected]

@Aliasrei

Chapter 05 International Financial Reporting Standards: Part II Multiple Choice Questions

1. The primary difference between IAS 37, and U.S. GAAP concerning the treatment of contingent liabilities pertains to: A) definition of terms. B) measurement. C) classification on the balance sheet. D) disclosure of relevant information. Answer: A Level: Medium LO: 1, 2 2. The term “provision” as it is used in IAS 37, is most closely related to what term in U.S. GAAP? A) Contingent liability, where the outflow of resources is “remote.” B) Contingent liability, where the outflow of resources is “probable.” C) Current liability, where the outflow is difficult to measure. D) Reserve for bad debt, where the amount recoverable is “uncertain.” Answer: B Level: Medium LO: 1, 2 3. Under IAS 37, how are contingent liabilities treated in the financial statements? A) IAS 37 does not address contingent liabilities. B) They are recorded as current liabilities if the amount is reasonably measured. C) They are disclosed in the notes to the financial statements when there is more than a remote possibility of an outflow of resources. D) They are not disclosed. Answer: C Level: Medium LO: 1

5-1 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

4. What is a “contingent asset?” A) There is no such thing, in either IASB standards or U.S. GAAP, as a “contingent asset.” B) This is an asset that has been put up as collateral against a loan. C) This is a possible inflow of resources arising from a future activity. D) It is a probable asset, arising from past events ,whose existence is yet to be confirmed definitively by a future event. Answer: D Level: Medium LO: 1, 2 5. According to IAS 37, how should contingent assets be recognized? A) They should be disclosed in the notes to the financial statements if the inflow of resources is probable. B) They should be recognized like any other asset, with a debit to “contingent assets.” C) They should not be disclosed anywhere in the financial statements due to their uncertainty. D) They should only be disclosed in the notes to the financial statements if the inflows of resources are virtually certain. Answer: A Level: Hard LO: 1 6. Under IAS 37, inflows of resources that are “virtually certain” to be received should be: A) disclosed as contingent assets in the notes to the financial statements. B) recognized as assets. C) undisclosed until management is absolutely certain that resources will be received. D) reported only in the cash flow statement. Answer: B Level: Medium LO: 1 7. Why is it difficult to compare IAS 18, Revenue, to U.S. GAAP? A) The IASB definition of revenue is very complicated, whereas the definition of revenue under U.S. GAAP is straightforward. B) Revenue is not defined under U.S. GAAP. C) There is no single standard in U.S. GAAP that deals solely with revenue. D) Under U.S. GAAP, revenue is defined in terms of cash, whereas IAS 18 defines revenue in terms of a variety of resources. Answer: C Level: Medium LO: 1, 2

5-2 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

8. How does U.S. GAAP require prior service costs related to retirees to be recognized? A) amortize over the average remaining working lives of active employees B) recognize immediately C) don’t recognize at all D) amortize over remaining expected life of the retirees Answer: D Level: Medium LO: 1, 2 9. The IASB standard on stock options (IFRS 2) is substantially the same as U.S. GAAP. How should stock options be accounted for? A) Since their value is not determinable until a future date, they are not recorded, but only disclosed in the notes to the financial statements. B) A compensation expense is recorded based on the value of the options expected to vest as of the date the options are granted. C) An expense is recorded only if a market value for the options exists on the date the options are granted. D) The options are recorded as a liability for the value of the stock at the exercise date. Answer: B Level: Medium LO: 1, 2 10. Under IAS 1, Presentation of Financial Statements, which of the following is NOT a definition of a current liability: A) It is a liability that is expected to be settled in an entity’s normal operating cycle. B) It is a liability primarily held for the purpose of trading. C) It is a liability that does not have the right to defer until 18 months after the balance sheet date. D) It is a liability that is expected to be settled within 12 months of the balance sheet date. Answer: C Level: Medium LO: 1 11. Which of the following represents a difference in the classification of current liabilities between IFRS and U.S. GAAP? A) refinanced short-term debt B) amounts payable on demand due to violation of debt covenants C) bank overdrafts D) all of the above Answer: D Level: Medium LO: 1, 2

5-3 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

12. According to IAS 37, with respect to onerous contracts, a provision should be recognized for “unavoidable costs of the contract”, which is defined as: A) the intrinsic value of the contract. B) the lower of cost or market value of the contract. C) the lower of cost of fulfillment or the penalty from non-fulfillment of the contract. D) none of the above. Answer: C Level: Medium LO: 1 13. Under IAS 19, Employee Benefits, which of the following benefits are covered? A) compensated absences and bonuses B) post-employment benefits C) deferred compensation and disability benefits D) all of the above Answer: D Level: Easy LO: 1

5-4 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

14. Under IAS 19, with respect to the calculation of net pension expense (or revenue), which of the following components is NOT counted? A) actual annual return on plan assets B) current service cost C) current period actuarial gains and losses D) past service cost recognized in the current period Answer: A Level: Hard LO: 1 The following facts apply to questions 15-16: XYZ Company, a calendar-year entity, amends its defined benefit pension plan on January 1, 2010 and must recognize the increase in past service costs of its vested and non-vested employees as of that date in the calculation of its net 2010 pension expense (or revenue). The pertinent facts as of January 1, 2010 are: Increase in PSC—vested employees: Increase in PSC—non-vested employees: Remaining vesting period—non-vested employees: Remaining working life—vested employees: Remaining working life—non-vested employees:

$5,000 $2,000 5 years 10 years 20 years

15. Calculate the past service costs included in 2010 net pension expense (or revenue) under IAS 19. A) $5,100 B) $5,400 C) $600 D) $7,000 Answer: B Level: Medium LO: 1 16.Calculate the past service costs included in 2010 net pension expense (or revenue) under U.S GAAP. A) $5,100 B) $5,400 C) $600 D) $7,000 Answer: C Level: Medium LO: 1, 2

5-5 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

17. Which of the following is a difference between IAS 37 and U.S. GAAP with respect to restructuring provisions? A) U.S. GAAP does not allow recognition of a restructuring provision until a liability has been incurred. B) There is no difference between IAS 37 and U.S. GAAP with respect to restructuring provisions. C) IAS 37 does not allow recognition of a restructuring provision until a liability has been incurred. D) A restructuring provision and related loss is more likely to occur later under IAS 37 than under U.S. GAAP. Answer: A Level: Medium LO: 1, 2

5-6 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

18. Under the “corridor approach” of IAS 19, which is used to smooth out the impact of actuarial gains and losses, how are these losses recognized in the current period? A) to the extent they exceed 5% of the greater of the present value of the defined pension benefit obligation at the end of the previous year or the fair value of the plan assets at the end of the previous year B) They are amortized evenly over the current year and the next year. C) to the extent they exceed 10% of the greater of the present value of the defined pension benefit obligation at the end of the previous year or the fair value of the plan assets at the end of the previous year D) They are amortized evenly over the average expected remaining lives of active employees. Answer: C Level: Hard LO: 1 19. With respect to post-employment medical benefits, U.S. GAAP: A) does not recognize the concept of post-employment medical benefits. B) has considerably less guidance than IAS 19. C) follows the guidance of IAS 19. D) has considerably more guidance than IAS 19. Answer: D Level: Medium LO: 1, 2 20. Which of the following is NOT a share-based payment transaction under IFRS 2? A) equity-settled share-based payment B) cash-settled share-based payment C) choice-of-settlement share-based payment D) All of the above are share-based payment transactions under IFRS 2. Answer: D Level: Easy LO: 1

5-7 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

21. Under IFRS 2, Share-based Payment, what approach is used to account for the transaction? A) comparable transaction approach B) fair value approach C) market approach D) notional value approach Answer: B Level: Medium LO: 1 22. Under both IFRS and U.S. GAAP, in an equity-settled share-based payment transaction, how are such payments to non-employees measured? A) at the cost of the goods or services received B) Both standards are silent as to the treatment of non-employees. C) always the fair value of the equity instrument D) at the fair value of goods or services received, if a reliable determination is available—otherwise, the fair value of the equity instrument Answer: D Level: Medium LO: 1, 2 23. Under U.S. GAAP, with respect to equity-settled share-based payments, if the fair value of the equity instrument is used, the value is determined: A) at the earlier of the date a commitment for performance is reached or the date the services are actually completed. B) at the date the services are actually completed. C) at the date a commitment for performance is reached. D) none of the above Answer: A Level: Medium LO: 1, 2

5-8 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

24. How does U.S. GAAP differ from IFRS with respect to cash-settled share-based payments? A) U.S. GAAP always treats such payments as a liability. B) U.S. GAAP offers the option to treat such payments as either a liability or equity. C) IFRS and U.S. GAAP follow the same approach with respect to such payments. D) U.S. GAAP, under certain circumstances, may treat such payments as equity. Answer: D Level: Medium LO: 1, 2 25. Under IFRS 2, with respect to cash-settled share-based payments, when an employee has received stock appreciation rights, how is the fair value of those rights measured? A) using the Black Motor Pool method B) using an option pricing model C) using the Van der Graaf approach D) all of the above Answer: B Level: Hard LO: 1 26. Under IFRS 2, with respect to choice-of-settlement share-based payments, if it is the entity that has the right to choose between equity settlement and cash settlement, when must the entity choose the cash settlement? A) if the supplier provides services B) if the supplier provides goods C) if the entity has a present obligation to settle in cash D) The entity always has the option to choose either method. Answer: C Level: Medium LO: 1 27. Under IFRS 2, with respect to choice-of-settlement share-based payments, if the supplier chooses the cash settlement, the entity is deemed to have issued a compound financial instrument consisting of debt and equity. When cash is received, how does the supplier report it? A) only against the equity portion B) apportioned between debt and equity based on relative fair market value of each component C) in current year income D) only against the debt portion Answer: D Level: Medium LO: 1

5-9 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

28.Under IAS 36, Income Taxes, which of the following issues are covered? A) temporary differences B) operating loss carry-forwards C) tax credit carry-forwards D) all of the above Answer: D Level: Easy LO: 1 29. Under IAS 12, current and deferred taxes are measured on the basis of: A) rates that have been enacted or substantively enacted by the balance sheet date. B) current rates and rates anticipated when temporary differences reverse. C) rates anticipated when temporary differences reverse. D) whether the entity provides goods or services. Answer: A Level: Medium LO: 1 30. Under the IASB’s exposure draft, Income Tax, how would the term “substantively enacted”, as it applies to tax laws, be determined? A) when the affected jurisdiction has issued final regulations with respect to a tax law B) when any future steps in the enactment process can’t change the outcome C) when one part of a bicameral legislature has passed a tax bill D) all of the above Answer: B Level: Hard LO: 1 31. Under U.S. GAAP, a deferred tax asset must be realized when: A) realization is probable. B) realization is possible. C) realization is more likely than not. D) realization is greater than 75% likely. Answer: C Level: Medium LO: 1, 2 32. What is the journal entry required to recognize a deferred tax asset of $50,000? A) Dr. Deferred Tax Asset $50,000, Cr. Income Tax Benefit $50,000 B) Dr. Deferred Tax Asset $50,000, Cr. Equity $50,000 C) Dr. Income Tax Expense $50,000, Cr. Deferred Tax Asset $50,000 D) Dr. Deferred Tax Asset $50,000, Cr. Deferred Tax Liability $50,000 Answer: A Level: Medium LO: 1, 2

5-10 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

33. Under IAS 12, Income Taxes, how is the relationship between a hypothetical tax expense based on statutory rates and reported tax expense based on the effective tax rate explained? A) A numerical reconciliation between tax expense based on the statutory rate in the home country and tax expense based on the effective tax rate must be presented. B) A numerical reconciliation between tax expense based on the weighted-average statutory rate across jurisdictions in which the company pays income taxes and tax expense based on the effective tax rate must be presented. C) Either (A) or (B) are acceptable explanations. D) Neither (A) nor (B) are acceptable explanations. Answer: C Level: Medium LO: 1 34. What kinds of temporary differences related to income taxes can arise under IFRS that don’t occur under U.S. GAAP? A) book and tax differences related to the revaluation of property, plant, and equipment for book purposes and cost method for tax purposes. B) book and tax differences related to the calculation of impairments for book purposes with no like adjustment for tax purposes. C) both (A) and (B) D) use of the LIFO inventory method for book purposes and the FIFO inventory method for tax purposes. Answer: C Level: Hard LO: 1, 2 35. Under IAS 1, Presentation of Financial Statements, how must deferred taxes be classified on the balance sheet? A) as either a current asset or a current liability B) as always a noncurrent asset or a noncurrent liability C) as either a current or noncurrent asset or liability based on the expected timing of realization D) as a separately stated positive or negative component of equity Answer: B Level: Medium LO: 1

5-11 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

36. IAS 18, Revenue, covers which types of revenues? A) sale of goods B) rendering of services C) interest, royalties, and dividends D) all of the above Answer: D Level: Easy LO: 1 37. Under IAS 18, which of the following is NOT a condition that must be met in order for revenue from the sale of goods to be recognized? A) The significant risks and rewards of ownership of the goods have been transferred to the buyer. B) There must be a binding, written contract between the seller and the buyer. C) The amount of revenue can be measured reliably. D) Neither continued managerial involvement normally associated with ownership nor effective control of the goods is retained. Answer: B Level: Medium LO: 1 38. Under IAS 18, which of the following is an example of retention of significant risks and rewards by the seller? A) The buyer has no right to rescind the purchase. B) The seller is under no obligation for satisfactory performance not covered by normal warranties. C) Goods are sold subject to installation, but installation is not a significant part of the contract and has not yet been completed. D) Receipt of revenue by the seller is contingent on the buyer generating revenue through its sale of the goods. Answer: D Level: Medium LO: 1 39. Under IAS 18, if four out of the five conditions for recognizing revenue from the sale of goods are met, and the entity is 75% certain that revenue will be recognized as a result, how would a $100,000 sale be recognized at the time of the sale? A) The recognition of the entire sale must be deferred until the fifth condition has been met. B) $75,000 of the sales price can be currently recognized and $25,000 will be treated as a liability. C) The entire $100,000 sales price can be currently recognized since most of the conditions have been met. D) None of the above represents a proper treatment of this sale. Answer: B Level: Medium LO: 1

5-12 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

40. What is true about both IFRS and U.S. GAAP with respect to service contracts? A) IFRS and U.S. GAAP both allow the use of the percentage-of-completion method. B) Neither IFRS, nor U.S. GAAP allows the use of the percentage-of-completion method. C) IFRS allows the use of the percentage-of-completion method while U.S. GAAP does not. D) U.S. GAAP allows the use of the percentage-of-completion method while IFRS does not. Answer: C Level: Medium LO: 1, 2 41. Under IAS 18, when it is probable that the economic benefits of interest, royalties, and dividends will flow to the enterprise and can be measured reliably, how should revenue be recognized? A) Interest income shall be recognized based on an effective yield basis. B) Royalties are recognized on an accrual basis with reference to the terms of the agreement. C) Dividends are recognized when the shareholders’ right to receive payment is established. D) All of the above govern revenue recognition under these circumstances. Answer: D Level: Medium LO: 1 42. Under a joint exposure draft issued by the IASB and FASB in June 2010, Revenue from Contracts with Customers, which of the following is NOT one of the steps to be applied in the recognition of revenue across a wide range of transactions and industries? A) Identify the contract with a customer. B) Do not separate the transaction price for separate performance obligations if the contract is a bundled contract where goods and services are not sold separately. C) Identify the separate performance obligations in the contract. D) Determine the transaction price. Answer: B Level: Medium LO: 1, 2 43. IAS 32 defines a financial instrument as: A) the currency of a foreign country in which the enterprise does business. B) a certified check. C) any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. D) a recognized stock exchange. Answer: C Level: Easy LO: 1

5-13 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

44. Under IAS 32, which of the following is a financial asset? A) investment in equity instruments accounted for under the equity method B) investment in special-purpose entities C) a 30% investment in a subsidiary D) loans to other entities Answer: D Level: Hard LO: 1 45. Under IAS 32, which of the following is a financial liability? A) a payable B) a bank loan C) an intercompany loan payable D) all of the above Answer: D Level: Medium LO: 1 46. Under IAS 32, how should an equity instrument be classified? A) It must always be classified as equity by its very nature. B) The entity has the option of classifying it as a liability or equity. C) If it contains a contractual obligation that meets the definition of a financial liability, it should be classified as a liability. D) The entity should apportion the classification between liability and equity if there is a contractual obligation that meets the definition of a financial liability. Answer: C Level: Medium LO: 1 47. Under U.S. GAAP, if an entity issues 4% preferred stock that gives shareholders the right to redeem the shares if the prevailing interest rates on 5-year certificates of deposit exceed 4%, how should this stock be accounted for on the books of the entity? A) initially as equity and then reclassified as a liability when the triggering event occurs B) as a liability since the chances are more likely than not that the triggering event will occur C) as equity or a liability at the option of the entity D) as a permanent part of equity, to be debited as shares are redeemed Answer: A Level: Medium LO: 1, 2

5-14 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

‫ عالء محسن شحم‬[email protected]

@Aliasrei

48. Under IAS 39, Financial Instruments: Recognition and Measurement, which of the following is NOT a category into which a financial asset must be classified? A) property, plant, and equipment B) held-to-maturity investments C) loans and receivables D) available-for-sale financial assets Answer: A Level: Easy LO: 1 49. Under IAS 39, Financial Instruments: Recognition and Measurement, which of the following terms describes the removal of a financial asset or liability from the balance sheet when certain appropriate criteria have been met? A) decoupling B) extinguishment C) derecognition D) reversal Answer: C Level: Medium LO: 1 50. Under IAS 39, under what circumstances will derecognition of a financial liability occur? A) when the obligation has been paid B) when the obligation has been canceled C) when the obligation has expired D) all of the above Answer: D Level: Medium LO: 1

5-15 © 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.