MCQ Review 8

Question 1

A deferred tax assets must be reduced by a valuation allowance if it is

Answer 1

• More likely than not that some portion will not be realized
• The FASB specifically rejected the term probable as used in the accounting for contingencies

Question 2

Explain impairment of long-lived assets under US GAAP and IFRS

Answer 2

• Under IFRS, an impairment loss on an asset may be reversed in subsequent periods if a change in the estimates used to measure the recoverable amount has occurred. But an impairment loss recognized for goodwill must not be reversed.
• Under US GAAP, a previously recognized impairment loss must not be reversed.

Question 3

Whether recognized or unrecognized in an entity’t financial statements, disclosure of the fair values of the entity’s financial instruments is required when

Answer 3

it is feasible to estimate those values and aggregated fair values are material to the entity

Question 4

How are Unrealized holding gains and losses on AFS securities accounted for in the financial statements?

Answer 4

• Unrealized holding gains and losses on AFS securities not designated as being hedged in a FV hedge and not accounted for under the equity methos because of the investor’s inability to exercise significant influence over the investee
• There are reported in OCI until realized, net of tax effect

Question 5

What are the accomplishments by providing general-purpose financial information?

Answer 5

1. To provide information about an entity’s performance through measures of earnings and its components
2. To provide information about management’s performance
3. To provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the entity

Question 6

What does fair value measurement of an asset reflect?

Answer 6

It reflects the highest and best use by market participants

Question 7

When a company a holds 25% voting interest in other company, how should it be treated under IFRS?

Answer 7

Under IFRS, when an entity is presumed to have significant influence over its investee, it must account for its investment in accordance with the equity method

Question 8

When a company a holds 25% voting interest in other company, how should it be treated under US GAAP?

Answer 8

Under US GAAP, an entity that is presumed to have significant influence over an investee may elect to adopt the fair value option or equity method