MCQ Review 6

Question 1

Regarding inventory adjustments, how is it different between IFRS and GAAP

Answer 1

• Both IFRS and US GAAP require the cost of inventory to be written down if the utility of the goods is impaired.
• Unlike US GAAP, IFRS permit inventory to be written up to the lower of cost and NRV if previously written down. The reversal is permissible only to the extent of the prior write-down

Question 2

Defined a research and development cost

Answer 2

1. Research is defined as planned search or critical investigation
2. developing a new product, service process, or technique
3. brining about a significant improvement in an existing product, service, process or technique
4. Development is defined as a translation of research findings or other knowledge into a plan or design for a new or improved product or process.

Question 3

How is asset classified held for sale measured under GAAP?

Answer 3

Under GAAP, an asset classified as held for sale is measured at the lower of carrying amount or fair value minus cost to sell

Question 4

List examples of enterprise funds

Answer 4

1. Public utilities
2. Public hospitals
3. Public universities
4. Public transportation systems
5. Off-street parking lots and garages
6. Golf courses and swimming pools
7. Lotteries

Question 5

When investee’s potential voting rights are currently exercisable, how do these voting rights are interpreted?

Answer 5

Under IFRS, the assessment of the investor’s influence over the investee must consider not only ordinary shares but also potential voting rights that are currently exercisable or convertible. The investor considers such rights even if they are held by other entities.

Question 6

Where does BEPS is reported?

Answer 6

BEPS is reported for income before extraordinary items, not income form continuing operations.

Question 7

How are assets and liabilities valued in personal financial statements?

Answer 7

Valued at estimated current values at the date of the personal statement of financial condition

Question 8

At what level, does Goodwill should be tested for value impairment?

Answer 8

• Each reporting unit
• Goodwill is assigned to a reporting unit that benefited from the business combination for the purpose of testing impairment
• Testing occurs each year at the same time, but different reporting units may be tested at different times

Question 9

What is A/R pledging?

Answer 9

• Pledging is the process whereby the company uses existing accounts receivable as collateral for a loan.
• The company retain title to the receivables but “pledges” that it will use the proceeds to pay the loan
• Pledging requires only note disclosure
• Upon default, the lender can sell the receivables to recover the loan proceeds.

Question 10

Formula for Net realizable value of A/R?

Answer 10

NRV of A/R = Gross A/R - estimate of the A/R to be uncollectible