Mock Exam (original) Flashcards
In Germany, is the application of IFRS mandatory for both consolidated and single-entity financial statements for listed companies?
False
Explanation: In Germany, IFRS is mandatory only for consolidated financial statements, not for single-entity financial statements.
The objective of general purpose financial statements in accordance with the
IFRS Conceptual Framework for Financial Reporting is to provide information
about the company that is useful to present and future investors, lenders and
other creditors in making decisions about providing resources to the company.
True or false?
True
Explanation: The objective is to provide useful information for present and future investors, lenders, and creditors in making decisions about providing resources to the company.
Are relevance and verifiability fundamental qualitative characteristics of general-purpose financial statements under the IFRS Conceptual Framework?
False
Explanation: The two fundamental qualitative characteristics are relevance and faithful representation, not verifiability.
Must foreign entities’ financial statements be translated into a common reporting currency before consolidation in a group?
True
Explanation: For consolidation, financial statements of foreign entities must be translated into the group’s functional currency.
Is financial accounting backward-looking and therefore not useful for forecasting future cash flows?
False
Explanation: While financial accounting is backward-looking, the information it provides can still be valuable for forecasting future cash flows and assessing risks.
Should consideration only be given to the legal form of a sales contract when determining whether a sale has occurred?
False
Explanation: Both the substance and legal form of the transaction should be considered when determining whether a sale has occurred.
Is it possible that revenue recognition can be delayed until cash is received because the ‘control transfer’ criterion has not been met?
True
Explanation: If control of goods has not been transferred before cash is received, revenue cannot be recognized.
Does IAS 36 recognize impairment indicators from both external and internal sources, and require annual impairment testing for certain assets?
True
Explanation: IAS 36 mandates using both internal and external information for impairment testing, and certain assets (e.g., goodwill) require annual testing.
Does IAS 36 define the recoverable amount as the minimum of fair value less costs of disposal and value in use?
False
Explanation: The recoverable amount is the higher of fair value less costs of disposal and value in use, not the minimum.
Does IAS 37 require recognition of a provision if a company has a present obligation due to a past event and a reliable estimate can be made?
This statement is true.
IAS 37 requires the recognition of a provision if:
The company has a present obligation (either legal or constructive) as a result of a past event.
It is probable (more likely than not) that an outflow of resources (such as cash) will be required to settle the obligation.
A reliable estimate can be made of the amount of the obligation.
Which statement is correct about accounting systems in Continental European countries and Anglo-Saxon countries?
A: The dominant accounting principle in Continental European countries is the prudence principle; therefore, companies mostly have to measure their inventories and other assets at current cost.
B: The dominant accounting principle in Anglo-Saxon countries is the “true and fair view”; therefore, accounting rules have relatively few options and relatively wide scope to allow companies to report assets, liabilities, and income in the most accurate way.
C: Traditionally, financial accounting and tax accounting are closely linked in Continental European countries; as a result, there is a tendency for companies to understate their assets and overstate their liabilities.
D: An important user group of financial statements in Continental European countries are the companies’ creditors; to satisfy their information needs, financial reporting requirements mandate very far-reaching disclosures.
Correct Answer: C
Explanation: In Continental European countries, financial and tax accounting are traditionally aligned, leading to conservative reporting where companies understate assets and overstate liabilities to comply with tax requirements.
Which of the following transactions affects the cash flow from financing activities in a statement of cash flows in accordance with IAS 7?
A: Payment of salaries to employees
B: Acquisition of property, plant, and equipment
C: Sale of products on credit
D: Issuance of new shares
Correct Answer: D
Explanation: Issuing new shares is a financing activity as it involves raising capital. Other transactions like salary payments and equipment acquisitions fall under operating and investing activities.
Which criteria must be satisfied for an item of property, plant, and equipment (PPE) to be recognized as an asset in the financial statements according to IAS 16?
A: It is possible that any future economic benefit associated with the item will flow to the company.
B: It is possible that any future economic benefit associated with the item will flow to the company and the cost or value of the item can be measured reliably.
C: It is probable that any future economic benefit associated with the item will flow to the company and the cost or value of the item can be measured reliably.
D: It is virtually certain that any future economic benefit associated with the item will flow to the company and the cost or value of the item can be measured reliably.
Correct Answer: C
Explanation: According to IAS 16, PPE is recognized as an asset when future economic benefits are probable and the cost can be reliably measured.
Which statement does not apply to the depreciation of items of property, plant, and equipment (PPE) according to IAS 16?
A: The depreciable amount of an item of PPE has to be allocated on a systematic basis over its useful life.
B: The depreciation method used must reflect the pattern in which the future economic benefits of the PPE are expected to be consumed by the company.
C: The depreciation method applied to PPE must be reviewed annually, and even if there is only an insignificant change in the expected pattern of consumption, the method must be changed to reflect this.
D: In determining the useful life of PPE, companies consider factors like expected usage, physical wear and tear, obsolescence, and legal limits.
Correct Answer: C
Explanation: While the depreciation method must be reviewed annually, it is not required to be changed unless there is a significant change in the expected pattern of consumption of benefits.
Which of the following is not part of the cost of an item of property, plant, and equipment (PPE) in accordance with IAS 16?
A: Costs of materials used in preparing the site where PPE is to be constructed.
B: Wages and salaries arising from the construction of an item of PPE.
C: Costs incurred while an item of PPE that is capable of operating in the manner intended by management has yet to be brought into use.
D: Costs of dismantling and removing an item of PPE and restoring the site on which it is located.
Correct Answer: C
Explanation: Costs incurred after the PPE is capable of operating as intended but not yet in use are not capitalized, while the other costs are part of the PPE.
