International Financial Reporting Standard(IFRS)

Question 1

Most difference between IFRS and GAAP fall into five categories:

Answer 1

1) Terminology and definitions:for example: Under GAAP, the lease can be categorized as a operating and capital lease versus Under IFRS, operating vs financial
2) Recognition: Under GAAP, LIFO exist but Under IFRS, LIFO doesnt exist. Extraordinary gains and losses in GAAP but it doesnt exist in IFRS.
3) Measurement: inventory under GAAP is lower cost to market versus under IFRS is lower cost to NRV
4) Presentation: Current for deferred taxes under GAAP but under IFRS all deferred taxes consider non current
5) Disclosure:

Question 2

Historical changes between IFRS and GAAP:

Answer 2

1) Born of IFRS: International Accounting Standards Committee(IASC) was formed and developed a series of international accounting standards(IAS). This body was replaced by the International Accounting Standard Board(IASB) which issues International Financial Reporting Standard(IFRS).
2) Historical difference: IFRS: Principle based requires more judgement versus GAAP: rule-based established guidelines and accounting treatment.
3) many who believe that, given a little time, IFRS will be just as rules-based as US GAAP.
4) As part of a project converge US GAAP and IFRS, US standard Settlers are scaling back some of the rules- based approaches and incorporating approaches that are more principle - based.

Question 3

Qualitative Characteristic of F/S:

Answer 3

same as GAAP except under constraints, there are two categories:

1) cost/benefit
2) Going-Concern - assumption.

Question 4

IASB Framework

Answer 4

1) The IASB develops IFRS using principles that are established in a conceptual framework referred to as “ the conceptual framework for financial reporting”
2) IASB conceptual framework is authoritative but is lower in the hierarchy of standards than IFRS. An entity seeking guidance in the accounting for a transaction event or element that is not addressed in an IFRS will refer to the conceptual framework.
3) Under IFRS the financial statements are prepared on the accrual basis based on the going concern concept.

Question 5

The Objective of IASB conceptual Framework

Answer 5

The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential users in making decisions about providing resources to the entity.

Question 6

Financial performance reflected under accrual accounting depicts

Answer 6

effects in the periods in which they occur, enabling assessment of past and future performance.

Question 7

Financial performance reflected under cash accounting indicates

Answer 7

how an entity obtains and spend cash and provides information about its ability to generate future cash inflows.

Question 8

Define Financial capital

Answer 8

gains and losses in relation to assets and liabilities are only recognized when they affect the amount of financial net assets such as when assets are disposed or liabilities are settled.

Increase or decrease in asset or liabilities are not recognized until they are realized.

Question 9

Define physical capital

Answer 9

gains and losses in relation to assets and liabilities are recognized when the productive capacity of the entity is affected such as when assets or liabilities changes in value.

assets and liabilities may be revalued or restated, resulting in the recognition of income or expenses.

Question 10

Asset(Under IFRS)

Answer 10

a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity,

Question 11

Liability(IFRS)

Answer 11

a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economics benefits.

Question 12

Five elements of financial reporting under IFRS

Answer 12

3 element of financial position
1. Asset
2. Liability
3. Equity
2 Element of financial performance
1. Income 
2. Expenses

Question 13

Equity

Answer 13

the residual interest

Question 14

Gains

Answer 14

Gains are included as part of revenue and are not treated as a separate element since they may also arise due to ordinary activities. Income may be realized or unrealized.

Question 15

Income

Answer 15

Include both revenue and gains.

Increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increase in equity, other than those relating to contributions from equity participants.

Question 16

Expenses

Answer 16

include both expenses, and losses

Expenses are decreases in economic benefits during the accounting periods in the form of outflows or depletion of assets or incurrence of liabilities that result in decreases in equity other than those relating to distribution to equity participant.

Question 17

Gains

Answer 17

Part of the expenses.

Losses may also result from ordinary activities so are treated as separate elements. Expenses may be realized or not realized.

Question 18

capital maintenance adjustment

Answer 18

result from the revaluation or restatement of assets and liabilities that cause an increase or decrease in equity but not from income or expenses.

Question 19

income - expense =?

Answer 19

under IFRS “Profit”

Under GAAP “Net income”

Question 20

Under GAAP, what is “income”

Answer 20

income is not financial statement element and it is used to describe a calculation of some type(net income) or to designate a specific type of income such as interest income.

Question 21

Under IFRS, what is “income”

Answer 21

it is a financial statement element and the item that are considered “income” are revenues and gains.

Question 22

Recognition

Answer 22

Describes

1) when an item fits the definition of an element
2) when 2 criteria have been met
i) Probability of occurrence
ii) Reliable measurement

Question 23

When is an asset is recognized on B/S?

Answer 23

When it is probable that the inflow of economic benefit can be reliably measured

Question 24

When is a liability recognized on B/S?

Answer 24

When it is probable that an outflow of resources that can be reliably measured will result from settlement of present obligation.

Question 25

When is income recognized on I/S?

Answer 25

when an increase in future economic benefits that can be reliably measure relates to an increase in an asset or decrease of a liability.

Question 26

When is expense recognized on I/S?

Answer 26

When a decrease in future economic benefits that can be reliability measured relates to a decrease in an asset or increase of a liability.

Question 27

How to measure the items on F/S?

4 methods

Answer 27

1) Historical cost
2) Current cost - replacement cost
3) Realizable or settlement value - selling price of an asset or actual payment of debt
4) Present value -

Question 28

Financial capital concept

Answer 28

capital is the net assets of entity

Question 29

Financial capital maintenance theory

Answer 29

income is earned when the amount of net assets has increased during the period after eliminating the effects of transactions with owners

Question 30

Physical capital concept

Answer 30

capital is the productive capacity of entity

Question 31

Physical capital maintenance theory

Answer 31

income is earned when the operating capacity of entity increases during the period after eliminating the effects of transactions with others

Question 32

Under IAS 18, the requirements of recognizing revenue apply to all transactions involving revenue from (3)

Answer 32

1) Sales of goods
2) rendering of services
3) use of assets to earn interest, royalties and dividends

Question 33

Revenues from the sales of goods occur when 5 criteria have been met:

Answer 33

1) Significant risks and rewards of ownership transferred to the buyer.
2) Selling entity does not retain managerial involvement associated with ownership of the asset.
3) The amount can be reliably measured.
4) Economic benefits are likely to flow to entity
5) Costs incurred and to be incurred in relation to the transaction can be reliably measured.

Question 34

Revenues for transactions involving rendering of services involves:

Answer 34

1) when the outcome can reliably estimated, revenue is recognized based on the stage of completion(% of completion)
2) When the outcome cannot be reliably estimated, revenue is recognized to the extent of recoverable expenses recognized(cost recovery).

Question 35

Revenues from dividends are recognized when

Answer 35

1) the amounts can be reliably estimated and economic benefits are likely to flow to entity.
2) dividends are recognized when the shareholders right to receive payment is established.

Question 36

Revenue from interest are recognized when

Answer 36

1) the amounts can be reliably estimated and economic benefits are likely to flow to entity.
2) Interest is recognized using the effective interest method.

Question 37

Revenue from Royalties are recognized when

Answer 37

1) the amounts can be reliably estimated and economic benefits are likely to flow to entity.
2) Royalties is recognized using the accrual basis.

Question 38

Five categories of revenue disclosures involves:

Answer 38

1) Sales of goods
2) Rendering of services
3) Interest
4) Royalties
5) Dividends

Question 39

Disclosures of revenue will include:

Answer 39

1) amount policies adopted for recognized revenues
2) amount of revenue recognized for five category
3) amount of revenue from exchange of good and services in five categories.