Financial Accounting MCQ

Question 1

Inventory item in SoPL (IAS 2 Inventories)

Answer 1

Lower of :
Cost 
OR 
NRV (Net realisable value) 
NRV = Current Value - Cost to sell

Question 2

Inventory in P&L (IAS 2 Inventories)

Answer 2

Cost - Value = P&L

Question 3

Cost of sales for Inventory (IAS 2 Inventories)

Answer 3

COS = Opening Inventory + Purchases - Ending Inventory

Ignore Marketing ans Selling Expenses for this ( May be a trick in there )

Question 4

(IAS 37 Provisions, Contingent Liabilities and Contingent Assets)

Answer 4

Is there an Obligating event?
Provision = Probable > 50%
Contingent = Possible < 50%
Provision is recorded in the Statement of financial Position
Contingent liability is included in the notes of the accounts
Note: Look for either Provision, Contingent in the answer.

Question 5

Is a redundancy notification a legal OR constructive obligation ? (IAS 37)

Answer 5

A = Constructive Obligation

Question 6

When is there an Obligating event (IAS 37)

Answer 6

Not when it is discussed in a meeting for example BUT when the decision is in effect.

Question 7

Cost of Asset (IAS 16 Property plant and equipment)

Answer 7

Cost of asset = Cost + Cost of bring asset into use

Question 8

Cost of New Machinery (IAS 16 Property plant and equipment)

Answer 8

Include : Cost of Machinery, Transportation cost of machinery, Cost of installation of the machinery, Start up costs
Ignore : General Overheads or Training costs to use machine

Question 9

Intangible assets (IAS 38 Intangible assets)

Answer 9

‘An intangible asset is an identifiable non-monetary asset without physical substance’

To be recognised in the financial statement, an intangible asset must meet:

1. The definition of an intangible asset
2. Meet the recognition criteria’ of the framework;
   - It is probable that future economic benefits attributable to the asset will flow to the entity
   - the cost of the asset can be measured reliably.

Question 10

Research and development expenditure (IAS 38 Intangible assets)

Answer 10

When calculating amount to be recorded on financial statements only include the costs that have already been incurred NOT expected costs.
Note: If the project is not completed the company cannot capitalise the project so must be written off as revenue expenditure.