Multiple choice questions

Question 1

Qualitative characteristics Information that is able to confirm or correct past evaluations that have been made by users of financial information is an example of information that satisfies which of the following characteristics of financial information identified in the Framework?

a. Understandability
b. Relevance
c. Reliability
d. Comparability

Answer 1

b. Relevance

Question 2

Assumptions in preparing financial statements Which of the following is a key assumption underlying the preparation of financial statements?

a. the going concern basis of accounting
b. the matching principle
c. the prudence principle
d. the historical cost measurement basis

Answer 2

a. the going concern basis of accounting

Question 3

Measurement bases In relation to measurement of the elements of financial statements

a. The Framework acknowledges that a variety of measurement bases are used to different degrees and in varying combinations in financial statements.
b. The Framework includes detailed concepts and principles for selecting which measurement basis should be used for particular elements of financial statements.
c. Net realisable value is the preferred basis for measurement of assets.
d. The Framework adopts a mixed attribute accounting model

Answer 3

a. The Framework acknowledges that a variety of measurement bases are used to different degrees and in varying combinations in financial statements.

Question 4

Assumptions when preparing financial statements If management intends to liquidate the entity’s operations, financial statements are prepared on the basis of

a. Historical cost
b. Historical cost with a note that the entity is about to liquidate
c. Expected liquidation values
d. Financial statements do not have to be prepared.

Answer 4

c. Expected liquidation values

Question 5

Measurement bases:

The measurement method most commonly used in the preparation of financial statements is:

a. present value;
b. current replacement cost;
c. discounted future cash flows;
d. historical cost.

Answer 5

d. historical cost.

Question 6

Need for a standard:

Which of the following is not one of the key reasons given by the IASB for issuing a standard on fair value measurement?

a) to establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application;
b) to clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly;
c) to require the use of fair value when accounting for all non- financial assets
d) to enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values.

Answer 6

c) to require the use of fair value when accounting for all non- financial assets

Question 7

Key characteristics of fair value:

At which date is fair value determined?

a) the measurement date
b) the settlement date
c) the transaction date
d) the exchange date

Answer 7

a) the measurement date

Question 8

3. Steps in determining the fair value of non-financial assets:

Which of the following is NOT a valuation technique prescribed by IFRS 13?

a. the fair value approach
b. the income approach
c. the cost approach
d. the market approach

Answer 8

a. the fair value approach

Question 9

Steps in determining the fair value of non-financial assets:

Unobservable inputs for the asset or liability are an example of:

a) a Level 1 input
b) a Level 2 input
c) a Level 3 input
d) a Level 4 input

Answer 9

c) a Level 3 input

Question 10

Steps in determining the fair value of non-financial assets:

Which of the following is NOT an example of a level 2 input?

a) a financial forecast of cash flow or earnings
b) quoted prices for identical or similar assets or liabilities in markets that are not active
c) inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves, volatilities, prepayment speeds, and credit risks
d) inputs that are derived from or corroborated by observable market data by correlation or other means.

Answer 10

a) a financial forecast of cash flow or earnings

Question 11

Which of the following is an example of a financial instrument?

a. A Provision for restructuring
b. A contract to by copper
c. A futures contract to buy US–‐dollars
d. A pension liability

Answer 11

c. A futures contract to buy US–‐dollars

Question 12

Which of the following is NOT an example of a financial asset/liability?

a. Advances received on a construction project
b. A contract that will be settled in the company’s own equity
c. Cash
d. Shares

Answer 12

a. Advances received on a construction project

Question 13

How is an equity instrument defined?

a. The instrument includes no contractual obligation and will/may be settled in the issuer’s own debt instrument
b. The instrument includes no contractual obligation and the instrument will/may be settled in the issuer’s own equity instrument
c. The instrument includes a contractual obligation and the instrument will/may be settled in the issuer’s own equity instrument
d. The instrument includes no contractual obligation and will/may be settled in cash.

Answer 13

d. The instrument includes no contractual obligation and will/may be settled in cash.

Question 14

Which of the following is an example of an equity instrument?

a. Preference shares that will be redeemed at the option of the holder.
b. Preference shares that can be converted into shares at the option of the holder, or redeemed.
c. A convertible bond with a fixed interest rate that can be exchanged into shares at the option of the holder, or be settled in cash.
d. A convertible bond with a variable interest rate that can be exchanged into common shares at the option of the issuer, the company.

Answer 14

c. A convertible bond with a fixed interest rate that can be exchanged into shares at the option of the holder, or be settled in cash.

Question 15

Which of the following is NOT an example of market risks?

a. Value changes coming from fluctuations in the Swedish krona (SEK)
b. Value changes on a futures contract in US–‐dollar (USD), as part of a hedge transaction of exports in USD.
c. The change in the value of the company’s bond, due to a downgrade in creditworthiness from Standards & Poor.
d. The change in the value of the company’s bond, due to changes in the value of government bonds with the same maturity.

Answer 15

c. The change in the value of the company’s bond, due to a downgrade in creditworthiness from Standards & Poor.

Question 16

Which of the following is an example of an equity instrument?

a. Put options on a company’s outstanding common shares.
b. Warrants to issue a fixed amount of new common shares in the company.
c. Preference shares with a cumulative dividend that can be exchanged into common shares or cash at the option of the holder.
d. Preference shares with a non–‐cumulative dividend that can be exchanged into common shares or cash at the option of the holder.

Answer 16

d. Preference shares with a non–‐cumulative dividend that can be exchanged into common shares or cash at the option of the holder.

Question 17

How are leases classified?

a. A financial lease are all transactions that are not classified as operating leases
b. An operating lease are all leasing transactions that are not classified as financial leases
c. An operating lease transfers substantially all the risks and rewards to the user of the asset.
d. A financial lease can be applied on land, plant and vehicles.

Answer 17

b. An operating lease are all leasing transactions that are not classified as financial leases

Question 18

A non-cancellable lease is always classified as:

a. A financial lease
b. An operating lease
c. A financial lease, unless the asset involved are intangibles.
d. An operating lease, unless the asset involved are land or property.

Answer 18

a. A financial lease

Question 19

If certain characteristics are met, a cancellable lease can be deemed non-cancellable? Which of the following is NOT one of those characteristics?

a. If leases can be cancelled only upon the occurence of some remote contingency.
b. If leases can be cancelled only with the permission of the lessor
c. If the lessee, upon cancellation, must pay a large penalty to the lessor.
d. If the lessee, upon cancellation, can enter in into further lease for the same or equivalent asset with the same lessor.

Answer 19

d. If the lessee, upon cancellation, can enter in into further lease for the same or equivalent asset with the same lessor.

Question 20

Which of the following disclosures for credit risk do NOT need to be disclosed in the annual report.

a. Information about the credit grading of the assets performed by a regulated credit agency, like S&P, Moody’s, Fitch or similar.
b. An analysis of the age of the financial assets (receivables, loans) that are past due.
c. An analysis of the financial assets (receivables, loans) that are impaired individually.
d. Specified details when the company/bank take possession of collateral it holds as security.

Answer 20

a. Information about the credit grading of the assets performed by a regulated credit agency, like S&P, Moody’s, Fitch or similar.

Question 21

Which of the following items are excluded from IAS39?

a. Equity instruments, except instruments included in IFRS9, Financial instruments.
b. Loan commitments.
c. Financial instruments to which IFRS 2, Share—‐based payments applies
d. Financial instruments included in hedging, to which IFRS 7 applies.

Answer 21

c. Financial instruments to which IFRS 2, Share—‐based payments applies

Question 22

Which of the following are NOT characteristics of an derivative

a. The value of a derivative is always connected to an underlying asset or a liability.
b. It requires an initial net investment that is smaller than other types of contracts with similar return from market changes.
c. It is always settled at a future date
d. It is never settled in cash only settled in the underlying instrument.

Answer 22

d. It is never settled in cash only settled in the underlying instrument.

Question 23

Which of the following is NOT an example of a defined contribution post—‐ employment plan?

a. An employee receives 15 percent of the total salary multiplied by the number of years in service, as a lump sum of money at retirement.
b. An employee receives SEK 20.000 SEK per month from the month following the employee’s 64th birthday.
c. An employee receives 25 percent of the salary paid into an account, for each year of service in the company. The employee controls the account from its 55 birthday.
d. An employee receives 50 percent of the ending monthly salary as a life long monthly payment.

Answer 23

c. An employee receives 25 percent of the salary paid into an account, for each year of service in the company. The employee controls the account from its 55 birthday.

Question 24

An employee will receive 10 percent of the ending salary multiplied by the number of years of service as a lump sum. The employee has worked in the company for 3 years. The expected salary year 1 is SEK 280.000, year 2 SEK 290.000 and year 3 SEK 300.000. Consequently the total salary for three years is expected to be SEK 870.000. The risk free interest rate is 0 percent. Which of the following alternative is an example of the projected unit credit method?

a. The estimated pension cost each year 1—‐3 is SEK 30.000
b. The estimated pension cost year 1 is SEK 28.000, year 2 is SEK 29.000 and year 3 is SEK 30.000
c. The estimated pension cost is SEK 90.000 year 3.
d. The estimated pension cost is SEK 87.000 year 1

Answer 24

a. The estimated pension cost each year 1—‐3 is SEK 30.000

Question 25

Assume the number of years of service is three years and the pension liability at the end of year 3 is estimated to be SEK 270.000. Using a 5 percent discount rate the present value of the pension liability at the end of year 1 is SEK 81.633 and at the end of year 2 is SEK 171.429. What is the current service cost in year 2 and 3 using the projected unit credit method?

a. Year 2: SEK 81.633; year 3: SEK 98.571
b. Year 2: SEK 89.796; year 3: SEK 98.571
c. Year 2: SEK 85.714; year 3: SEK 90.000
d. Year 2: SEK 85.714; year 3: SEK 98.571

Answer 25

c. Year 2: SEK 85.714; year 3: SEK 90.000

Question 26

Assume the pension liability from January 1, 2015 is increased to SEK 300.000 at the end of year 3 because the employee has negotiated more pension at the end of year 3. Using a 5 percent discount rate the present value of the pension liability at the end of year 2 increases to SEK 190.476 and at the end of year 3 is SEK 300.000. What is the current service cost in year 2 and 3 using the projected unit credit method?

a. Year 2: SEK 190.476, year 3: SEK 300.000
b. Year 2: SEK 85.714, year 3: SEK 90.000
c. Year 2: SEK 108.844, year 3: SEK 109.524
d. Year 2: SEK 104.762, year 3: SEK 100.000

Answer 26

d. Year 2: SEK 104.762, year 3: SEK 100.000

Question 27

The same example as in assignment 4, but now we assume the increase in pension liability from January 1, 2015 is due to a salary increase. The pension liability from January 1, 2015 will increase to SEK 300.000. Using the same discount rate as previously, the present value of the pension liability at the end of year 2 increases to SEK 190.476 and at the end of year 3 is SEK 300.000. What are the current service cost and the adjustment of OCI in year 2?

a. Service cost year 2: SEK 104.762; OCI year 2: SEK 0
b. Service cost year 2: SEK 85.714; OCI year 2: SEK –‐19.048
c. Service cost year 2: SEK 104.762; OCI year 2: SEK –‐4.082
d. Service cost year 2: SEK 108.844; OCI year 2: SEK —‐19.048

Answer 27

b. Service cost year 2: SEK 85.714; OCI year 2: SEK –‐19.048

Question 28

The same basic example as in assignment 3. Assume the number of years of service is three years and the pension liability at the end of year 3 is estimated to SEK 270.000. Using a 5 percent discount rate the present value of the pension liability at the end of year 1 is SEK 81.633 and at the end of year 2 is SEK 171.429 and SEK 300.000 at the end of year 3. In year 2 the discount rate decreases to 3 percent. The present value of the pension liability at the end of year 2 is SEK 174.757. What are the current service cost, the interest cost and the adjustment of OCI in year 2?

a. Year 2 (SEK): Service cost 87.347, interest —‐2.449, OCI –‐3.329
b. Year 2 (SEK): Service cost 89.796, interest 0, OCI –‐3.329
c. Year 2 (SEK): Service cost 85.714, interest —‐2.449, OCI –‐4.962
d. Year 2 (SEK): Service cost 87.347, interest —‐4082, OCI –‐1696

Answer 28

a. Year 2 (SEK): Service cost 87.347, interest —‐2.449, OCI –‐3.329

Question 29

Paragraph 8 of IA19 defines the net interest on the net defined benefit liability/asset as the change in the liability/asset that arises from the passage of time. How is the return on the asset in a corresponding trust determined?

a. The return is equal to the long—‐term government bond yield or the long—‐term yield on high quality bonds.
b. The return is equal to the estimated weighted average cost of capital for the company.
c. The return is equal to the estimated borrowing cost for the company.
d. The return is equal to the weighted average of the estimated returns from long—‐term bonds, shares and other assets that the trust will invest in.

Answer 29

a. The return is equal to the long—‐term government bond yield or the long—‐term yield on high quality bonds.

Question 30

Which of the following is an example of cash settled share—‐based payment

a. An employee receives cash for share options when they expire.
b. An employee will work for three years to be able to exercise share options into shares
c. A customer receives share options in exchange for goods delivered. The options can be exercised to shares or sold.
d. A CEO receives share options that can be exchanged into shares within three years, provided the company presents an average return on equity over three years that is at least on the average level of the listed companies.

Answer 30

a. An employee receives cash for share options when they expire.

Question 31

Which of the following is true in an equity—‐settled share—‐base payment.

a. A customer receives shares in exchange of goods. The value of the goods is calculated as the shares multiplied by the listed share price at the delivery date.
b. An employee receives shares in exchange for work that has been put in. The employee cost is calculated as the shares multiplied by the share price at the grant date.
c. An employee receives share options in exchange for work that has been put in. The employee cost is calculated as the market value of the options at the grant date using Black & Scholes model and can be exchanged into cash at this amount before the conversion date.
d. A customer receives share options in exchange of goods. The value of the goods is calculated as the value of the share options using Black & Scholes model.

Answer 31

b. An employee receives shares in exchange for work that has been put in. The employee cost is calculated as the shares multiplied by the share price at the grant date.

Question 32

Stock options used in an equity—‐settled share—‐based transaction can be value using the Black & Scholes model. Which of the following factors are not important in this valuation.

a. Historical volatility
b. Estimated volatility
c. Estimated dividends
d. The corporate borrowing rate.

Answer 32

d. The corporate borrowing rate.

Question 33

An employee must stay in the company for three years to able to exercise the stock options received into shares. How is this included in the accounting of the employee cost in the income statement?

a. The present value of the total expected normal salary at the grant date must be calculated and included in the income statement spread over three years.
b. The difference between the market value of the stock options and the calculated normal salary must be included in the income statement immediately.
c. The market value of the stock options is included in the income statement spread over the three years.
d. The market value of the stock options is included in the income statement immediately.

Answer 33

c. The market value of the stock options is included in the income statement spread over the three years.

Question 34

A company grants 100 share option to each of its 500 employees January 1, 2014. The options can be exercised in shares December 31, 2015. The market value of one option at grant date is SEK 100. Consequently the total value of the options is SEK 5.000.000 (5mn). The employees must stay in the company for two years to be able to exercise the options. Of the employees, 4 percent are estimated to leave the company within two years. Which of the following calculations of the estimated earnings effect for 2014 and 2015 are in line with IFRS2?

a. 2014: SEK —‐4,8mn, 2015: SEK 0
b. 2014: SEK 0mn, 2015: SEK –‐4,8mn
c. 2014: SEK —‐2,5mn, 2015: –‐2,5mn
d. 2014: SEK —‐2,4mn, 2015: –‐2,4mn

Answer 34

d. 2014: SEK —‐2,4mn, 2015: –‐2,4mn

Question 35

Based on example 5 above —‐ in 2014 a total of 8 percent of the employees left the company. Calculate the estimated earnings effect of the options in 2015.

a. 2015: SEK +0,2mn
b. 2015: SEK –‐4,6mn
c. 2015: SEK –‐2,2mn
d. 2015: SEK –‐2,3mn

Answer 35

c. 2015: SEK –‐2,2mn

Question 36

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the appropriate accounting treatment for future operating losses is to:

a. Determine a reasonable estimate of the cost and provide for the future liability;
b. Determine the cost and charge it directly against retained earnings;
c. Not recognize such items in the financial statements;
d. Measure on the basis of estimated future cash flows.

Answer 36

c. Not recognize such items in the financial statements;

Question 37

At balance sheet date, Raschella Limited was awaiting the final details of a court case for damages awarded in its favour. The amount and possible receipt of damages is unknown and will not be decided until the court sits again in several months’ time. How is this event dealt with in the preparation of the financial statements?

a. do not recognise or disclose in the financial statements as the possibility of receiving damages is remote;
b. recognise as an asset in the financial statements as the receipt of damages is probable;
c. disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control;
d. recognise as a deferred asset in the statement of financial position and re-classify as a non—current asset when the court decision is known.

Answer 37

c. disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control;

Question 38

An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

a. liability
b. accrual
c. provision
d. contingent liability

Answer 38

d. contingent liability

Question 39

Provisions shall be recognised when:

I. an entity has a present obligation

II. it is possible that an outflow of resources will be required to settle the obligation

III. the amount of The obligation can be reliably estimated

IV. there has been a past event

a. I, II and III
b. II, III and IV
c. I, III and IV
d. I, II and IV

Answer 39

c. I, III and IV

Question 40

Liabilities which fail the recognition criteria and where The possibility of an outflow is

remote should:

a. be recognised as an accrual
b. be recognised as a provision
c. be recognised as a contingent liability
d. not be recognised in the financial statement at all

Answer 40

d. not be recognised in the financial statement at all

Question 41

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when providing for the future, a future event such as the clean—‐up of a contaminated site, gains and other cash inflows that are expected to arise on the sale of asset related to the clean—‐up, must be treated as follows:

a. set—‐off against the provision for the clean–‐up;
b. measured separately of the provision;
c. recognised directly in equity in the period in which the cash inflows arose;
d. recognised as a deferred asset.

Answer 41

b. measured separately of the provision;

Question 42

What is a lease?

a. The right of use of an asset for at least one year (12 months)
b. The right of use of only a physical asset like, land, plant and vehicles.
c. The right of use of an asset that will be transferred to the user when the lease term expires.
d. The right of use of an asset that is owned by one party (the lessor) but used by another party (the lesse).

Answer 42

d. The right of use of an asset that is owned by one party (the lessor) but used by another party (the lesse).

Question 43

Can a service agreement be accounted for as a lease?

a. Yes, if the service agreement relates to land, plant and equipment
b. Yes, if a third party performs the service required.
c. No, because the service contract is not owned by one party (the lessor).
d. No, because the service parties have not yet performed the actions required by the contract, when the contract is signed.

Answer 43

d. No, because the service parties have not yet performed the actions required by the contract, when the contract is signed.

Question 44

How are leases classified?

a. An operating lease are all leasing transactions that are not classified as financial leases
b. A financial lease are all transactions that are not classified as operating leases
c. An operating lease transfers substantially all the risks and rewards to the user of the asset.
d. A financial lease can only be applied on land, plant and vehicles.

Answer 44

a. An operating lease are all leasing transactions that are not classified as financial leases

Question 45

A non—‐cancellable lease is always classified as:

a. An operating lease
b. A financial lease
c. A financial lease, unless the asset involved are intangibles.
d. An operating lease, unless the asset involved are land or property

Answer 45

b. A financial lease

Question 46

A cancellable lease can be classified as non—‐cancellable from an accounting perspective if:

a. The lease term is at least 50 percent of the economic life of the leased asset.
b. If at least 50 percent of the risk and rewards are transferred to the lessee during the lease term.
c. If there is no ownership expected to be transferred to the user.
d. The present value of future minimum lease payments are substantially equal to the fair value of the asset

Answer 46

d. The present value of future minimum lease payments are substantially equal to the fair value of the asset

Question 47

What percentage of an asset’s life represents a major part of the economic lifetime:

a. More than 70 percent?
b. More than 80 percent?
c. No specified time frame
d. Equal to the depreciation time—‐frame for similar assets

Answer 47

c. No specified time frame

Question 48

Which of the following items are NOT included in the calculation of the present value of minimum lease payments:

a. Payments over the lease term
b. Guaranteed residual value
c. Gain or loss on the bargain purchase option
d. Contingent rent.

Answer 48

c. Gain or loss on the bargain purchase option

Question 49

When calculating the present value of minimum lease payments, how is the discount rate in the lease contract calculated?

a. It is the interest rate that causes the aggregate present value of minimum lease payments, to be equal to the fair value of the asset.
b. It is the interest rate for government bonds with the same maturity as the length of the lease contract
c. It is the interest rate for government bonds, with the same maturity as the length of the lease contract, adjusted for the beta value of the company shares
d. It is the lessee’s borrowing cost’s

Answer 49

a. It is the interest rate that causes the aggregate present value of minimum lease payments, to be equal to the fair value of the asset.

Question 50

Which of the following key—‐ratios are not affected by the inclusion of a lease as either financing or operating?

a. Debt to equity ratios
b. Return on equity
c. Return on assets
d. Turnover on assets

Answer 50

b. Return on equity

Question 51

How can a residual value that is guaranteed effect the presentation of a lease as financial or operating?

a. If the lessor guaranties the residual value for the lessee, this requires the lessee to present the transaction as a financial lease.
b. If the lessor is a separate finance company, the guarantee from the lessor requires the lessee to recognize the transaction as a financial receivable.
c. If the lessee guaranties the residual value for the lessor, this requires the lessee to present the transaction as a financial lease.
d. It the lessee guaranties the residual value for the lessor, and the lessor is a financial joint venture, the lease will be recognized as a part of the equity holding in the joint venture.

Answer 51

c. If the lessee guaranties the residual value for the lessor, this requires the lessee to present the transaction as a financial lease.

Question 52

What is the difference between the measurement of the following categories: 1) Fair value through profit and loss; 2) Held-to-maturity; 3) Available-for sale; 4) Loans and receivables?

a. Category 1 is measured at fair value, the others to amortized costs
b. Category 1 and 3 are measured at fair value, the others to amortized costs
c. Category 2 and 4 are measured at fair value, the others to amortized costs
d. Category 1, 2 and 3 are measured at fair value, category 4 at amortized costs.

Answer 52

b. Category 1 and 3 are measured at fair value, the others to amortized costs

Question 53

Which of the following items are NOT a hedge instrument?

a. A loan in foreign currency, to hedge currency risks in a foreign subsidiary
b. Forward contracts on foreign currencies
c. Interest rate swaps
d. A liquidity reserve in foreign currency, to hedge currency risks on import in the same currency

Answer 53

d. A liquidity reserve in foreign currency, to hedge currency risks on import in the same currency

Question 54

Stock options used in an equity-settled share-based transaction can be value using the Black & Scholes model. Which of the following factors are NOT important in this valuation?

a. Estimated volatility
b. Estimated dividends
c. The corporate borrowing rate
d. Historical volatility

Answer 54

c. The corporate borrowing rate

Question 55

A company grants 100 share option to each of its 500 employees January 1, 2014. The options can be exercised in shares December 31, 2015. The market value of one option at grant date is SEK 100. Consequently the total value of the options is SEK 5.000.000 (5mn). The employees must stay in the company for two years to be able to exercise the options. Of the employees, 4 percent are estimated to leave the company within two years. The earnings effect in 2014 was SEK -2,4 mn and in 2015 -2,4 mn. However, in 2014 a total of 8 percent of the employees left the company. Calculate the estimated earnings effect of the options in 2015.

a. 2015: SEK +0,2mn
b. 2015: SEK -2,2mn
c. 2015: SEK -2,3mn
d. 2015: SEK -4,6mn

Answer 55

b. 2015: SEK -2,2mn

Question 56

An employee will earn pension equal to 3 percent of the final salary five years from now (January1, year 1). Which of the following is a calculation according to the projected unit credit method?

a. The estimated pension liability at the end of year 2 is one fifth of the liability at the end of the fifth year, discounted to the present value January 1, year 1 and multiplied by 2.
b. The estimated pension liability at the end of year 2 is two fifths of the liability at the end of the fifth year.
c. The estimated pension liability at the end of year 2 is two fifths of the present value of the liability at the end of the fifth year, discounted to January 1, year 1.
d. The estimated pension liability at the end of year 2 is two fifths of the liability at the end of the fifth year. The liability at the end of year 2 is discounted to January 1, year 1.

Answer 56

d. The estimated pension liability at the end of year 2 is two fifths of the liability at the end of the fifth year. The liability at the end of year 2 is discounted to January 1, year 1.

Question 57

Paragraph 8 of IA19 defines the net interest on the net defined benefit liability/asset as the change in the liability/asset that arises from the passage of time. How is the return on the asset in a corresponding trust determined?

a. The return is equal to the long-term government bond yield or the long-term yield on high quality bonds.
b. The return is equal to the estimated borrowing cost for the company.
c. The return is equal to the estimated weighted average cost of capital for the company.
d. The return is equal to the weighted average of the estimated returns from long-term bonds, shares and other assets that the trust will invest in.

Answer 57

a. The return is equal to the long-term government bond yield or the long-term yield on high quality bonds.

Question 58

JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations would be as follows:

In 1 year €40 000 (discount factor: 0.943)

In 2 years €50 000 (discount factor: 0.89)

In 3 years €60 000 (discount factor: 0.84)

A government rate for bonds with similar terms, is 6%. What is the present value of the total expected future cash outflow?

a. $132 620;
b. $140 510;
c. $150 000;
d. 159 000.

Answer 58

a. $132 620;

Question 59

An entity sells goods under warranty and past experience shows that minor defects account for 10% of sales and major defects account for 2% of sales. If all minor defects were repaired the warranty cost would be €300 000, and if all major defects were repaired the warranty cost would be €800 000. The expected value of the warranty cost is:

a. €0;
b. €22 000;
c. €46 000;
d. €86 000.

Answer 59

c. €46 000;

Question 60

Wilson Limited applied the straight-line method of depreciation to its non-current assets. The cost of the buildings was €640 000, the depreciable amount is €560 000, the residual value is €80 000 and the useful life is 8 years. The annual depreciation charge is:

a. €80 000
b. €75 000
c. €70 000
d. €60 000

Answer 60

c. €70 000

Question 61

Replicator Limited acquired an item of Plant with an expected useful life of 5 years. Expected total production output over this period was: Year 1, 35 000 units; Year 2, 35 000 units; Year 3, 18 000 units; Year 4, 12 000 units. The asset cost $100 000 and associated installation costs amounted to $20 000 and residual value is $5000. The amount of depreciation charged in the first year is:

a. $40 250
b. $42 000
c. $35 000
d. $33 250.

Answer 61

a. $40 250

Question 62

Which of the following is the definition of fair value per IFRS 13?

a. The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction
b. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
c. The price that would be received to sell an asset or paid to transfer a liability.
d. A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (eg a forced liquidation or distress sale).

Answer 62

b. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 63

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date are an example of:

a. a Level 2 input
b. a Level 1 input
c. a Level 3 input
d. a Level 4 input

Answer 63

b. a Level 1 input

Question 64

Which of the following is an indication of an active market?

a. there are few recent transactions
b. price quotations vary substantially over time
c. price quotations vary substantially among market-makers
d. price quotations are based on current market information.

Answer 64

d. price quotations are based on current market information.

Question 65

Which of the following does Whittington (2008) see as a main feature of the fair value view?

a. Stewardship, defined as accountability to present shareholders, is a distinct objective, ranking equally with decision usefulness.
b. Reliability is less important and is better replaced by representational faithfulness, which implies a greater concern for capturing economic substance, and less with statistical accuracy.
c. Present shareholders of the holding company have a special status as users of financial statements.
d. Future cash flows may be endogenous: feedback from shareholders and markets in response to accounting reports may influence management decisions.

Answer 65

b. Reliability is less important and is better replaced by representational faithfulness, which implies a greater concern for capturing economic substance, and less with statistical accuracy.

Question 66

Which of the following is not an example of a level 2 input?

a. a financial forecast of cash flow or earnings
b. quoted prices for identical or similar assets or liabilities in markets that are not active
c. inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves, volatilities, prepayment speeds, and credit risks
d. inputs that are derived from or corroborated by observable market data by correlation or other means.

Answer 66

a. a financial forecast of cash flow or earnings

Question 67

Unobservable inputs for the asset or liability are an example of:

a. a Level 1 input
b. a Level 2 input
c. a Level 3 input
d. a Level 4 input

Answer 67

c. a Level 3 input

Question 68

Valuation techniques that convert future amounts to a single current amount and determines the fair value on the basis of the value indicated by current market expectations about those future amounts is an example of:

a. the fair value approach
b. the income approach
c. the cost approach
d. the market approach

Answer 68

b. the income approach

Question 69

An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as:

I they hold a net long position

II they hold a net short position

III they have a documented risk management strategy

IV they manage the group of net financial assets and liabilities on a net exposure basis

V transactions are conducted in an orderly market

a. I and III
b. II and IV
c. III and IV
d. II and V

Answer 69

c. III and IV

Question 70

Which of the following is the definition of exit price per IFRS 13?

a. A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (e.g. a forced liquidation or distress sale).
b. The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction
c. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
d. The price that would be received to sell an asset or paid to transfer a liability.

Answer 70

d. The price that would be received to sell an asset or paid to transfer a liability.

Question 71

Which of the following is not a characteristic of a market participant under IFRS 13?

a. Buyers and sellers that are able to enter into a transaction for the asset or liability.
b. Buyers and sellers that are willing to enter into a transaction for the asset or liability,
c. Buyers and sellers that are dependent on each other.
d. Buyers and sellers that are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information.

Answer 71

c. Buyers and sellers that are dependent on each other.

Question 72

Which are the two most common measures used in IFRS?

a. fair value less costs to sell and cost
b. value in use and cost
c. cost and fair value
d. net realisable value and fair value

Answer 72

c. cost and fair value

Question 73

What are the PV-factors when calculating a financial lease for year 1-4?

Answer 73

Year 1 = 1,0000

Year 2 = 0,9524

Year 3 = 0,9070

Year 4 = 0,8638

Question 74

Leasing: Var har du minustecken?

Answer 74

• Depreciation
• interest costs,
• Total cost,
• change in liability/year and,
• cash flow (interest + change in liability)

Question 75

IAS 19 Employee Benefits applies to all employee benefits except those within?

Answer 75

The scope of IFRS 2 Share Based Payments

Question 76

What is the purpose of IAS 19?

Answer 76

Employee Benefits:

It is to prescribe the measurement and recognition of expenses and liabilities arising from services provided by employers.

Question 77

Jackson Limited acquired a bundle of assets for a cash consideration of 200 000. The fair values of the assets on date of acquisition was as follows: Building 132 000, Furniture 88 000. The appropriate journal entry to record this acquisition is:

a)

DR Property, Plant and equipment 200’

CR Cash 200’

b)

DR Property, Plant and equipment 220’

CR Cash 220’

c)

DR Building 120’

DR Furniture 80’

CR Cash 200’

d)

DR Buiding 132’

DR Furniture 88’

CR Cash 220’

Answer 77

c)

DR Building 120’

DR Furniture 80’

CR Cash 200’

Calculation:

Building: 132’/220’ * 200’ = 120’

Furniture: 88’/220’ * 200 = 80’

Sum = 200’

Question 78

McCan Limited announced its plans for a major restructuring of its operations. Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the entity is able to:

a) capitalise all direct and indirect restructuring costs;
b) set up a provision for the best estimate of all restructuring costs;
c) provide only for the restructuring costs that are directly and necessarily caused by the restructuring;
d) provide for restructuring costs that are associated with the ongoing activities of the entitiy.

Answer 78

c) provide only for the restructuring costs that are directly and necessarily caused by the restructuring;

Question 79

Spectacular Limited acquired a parcel of land for 50 000. This amount is also the tax base of the land. Two years after acquisition date the building was revalued to 80 000. The tax rate is 30%. The appropriate journal entry to recognise the net effect of the revaluation is:

a)

DR Gain on revaluation - OCI 30’

CR Asset revaluation surplus 30’

b)

DR Land 21’

DR Income tax expense - OCI 9’

CR Asset revaluation surplus 30’

c)

DR Land 30’

CR Deferred tax liability 9’

CR Asset revaluation surplus 21’

d)

DR Gain on revaluation - OCI 30’

CR Income tax expense - OCI 9’

CR Asset revaluation surplus 21’

Answer 79

d)

DR Gain on revaluation - OCI 30’

CR Income tax expense - OCI 9’

CR Asset revaluation surplus 21’

Calculation:

The tax base of the asset is 50 000 and the new carrying amount is 80 000, giving rise to a taxable temporary difference of 30 000. A deferred tax liability of 9000 (30 000 * 0,3) must be raised to account for the expected tax to be oaid in relation to the increase in expected benefits from the asset. The asset revaluation surplus raised will be the net after-tax increase in the asset (30 000 - 9000 = 21 000).

Question 80

How, according to IAS 17 requirements, is a financial lease presented in the balance sheet and the income statement for a lessee?

a) No recognition in the balance sheet. The future lese payments are disclosed in the footnote, for year 1, year 2-5 (as a sum) and after year 5 and inwards (as a sum). The lease expense is recognized as an operationg cost in the income statement.
b) The present value of future lease payments is recognized as an asset and a liability. The lease expense is recognized as an operating cost in the income statement.
c) The nominal value of future lease payments is recognized as an asset and a liability. The lease expense is recognized as an operating cost in the income statement.
d) The present value of future lease payments is recognized as an asset and a liabiity. The asset is depriciated in line with the economic useful life. The interest cost on the liability is presented as a financial cost in the income statement.

Answer 80

d) The present value of future lease payments is recognized as an asset and a liabiity. The asset is depriciated in line with the economic useful life. The interest cost on the liability is presented as a financial cost in the income statement.

Question 81

How, according to IAS 17 requirements, is a financial lease presented in the balance sheet and the income statement for a manufacturer (and a lessor)?

a) The profit from the selling transaction is immediately recognized in the income statement. The FV of the asset is presented as a financial receivable. The revenue received will be recognized as interest income.
b) The profit from the selling transaction is deferred and recognized in the income statement over the lease contract. The FV of the asset is presented as a financial receivanle. The revenue received will be recognized as interest revenue.
c) No initial recognition of the profit from the selling transaction. The lease payments are recognized as revenue. The FV of the asset is presented as equippment and depriciated.
d) The profit from the selling transaction is immediately recognized in the income statement. The FV of the asset is presented as equipment and depriciated. The revenue received will be recognized as rental income.

Answer 81

a) The profit from the selling transaction is immediately recognized in the income statement. The FV of the asset is presented as a financial receivable. The revenue received will be recognized as interest income.

Question 82

IAS 16, Property, Plant And EquIpment overvIew

There are essentially four key areas when accounting for property, plant and equipment that you must ensure that you are familiar with:

Answer 82

¤ initial recognition
¤ depreciation
¤ revaluation
¤ derecognition (disposals).

Even though an asset has not yet been brought into use, IAS 16 states depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Question 83

If a sale and leasback transaction results in a gain for the previous owner (now lessee), how should this be treated in a finance lease for the lessee?

a) The gain should immediately be deferred and amortized over the lease term.
b) The gain should be dererred and amortized over the lease term.
c) The gain should be deferred to the end of the leasing period and recognized in the income statement when the leasing contract expires.
d) The gain should be included in Other Comprehensive Income and recycled to net earnings when the lease contract expires.

Answer 83

b) The gain should be dererred and amortized over the lease term.

Question 84

An acquisition can include contingent considerations, for example an additional payout to the seller of the company. Which of the following is NOT correct.

a) A contingent consideration must be included in the purchase price allocation.
b) A change in the contingent consideration after the purchase price allocation is finalized, must be included in the income statement.
c) A change in the contingent consideration after the purchase price allocation is finalized, must beadjusted against goodwill.
d) The effect from the contingent consideration may include the acquiring company’s valuation of future products introduced on the market.

Answer 84

c) A change in the contingent consideration after the purchase price allocation is finalized, must beadjusted against goodwill.

Question 85

Which are the key-steps in the acquisitions method according to IFRS3?

a) Identify an acquirer. Determine the acquisition date. Recognise and measure goodwill or gain from bargain purchase (negative goodwill). Recognize any contingent consideration (additional pay-outs).
b) Identify an acquirer. Determine the share price in the acquired company at the acquisition date. Recognise and measure the identifiable assets acquired, the liabilities assumed and non-controlling interest in the acquired company. Recognise and measure goodwill or gain from bargain purchase (negative goodwill).
c) Identify an acquirer. Determine the acquisition date (can be several). Recognise and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired company. Recognise and measure goodwill or gain from bargain purchase (negative goodwill).
d) Identify an acquirer. Recognise and measure the intangible assets acquired (for example customer lists), the liabilities assumed and any non-controlling interest in the acquired company. Recognise and measure goodwill or gain from bargain purchase (negative goodwill).

Answer 85

IFRS3 - Business combinations:

c) Identify an acquirer. Determine the acquisition date (can be several). Recognise and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired company. Recognise and measure goodwill or gain from bargain purchase (negative goodwill).

Question 86

How is an operating lease presented in the balance sheet and the income statement for a manufacturer (and a lessor)?

a) The profit from the selling transaction is immediately recognized in the income statement. The FV of the asset is presented as a financial receivable. The revenue received will be recognized as interest income.
b) The profit from the selling transaction is deferred and recognized in the income statement over the lease contract. The FV of the asset is presented as a financial receivanle. The revenue received will be recognized as interest revenue.
c) No initial recognition of the profit from the selling transaction. The lease payments are recognized as revenue. The FV of the asset is presented as equippment and depriciated.
d) The profit from the selling transaction is immediately recognized in the income statement. The FV of the asset is presented as equipment and depriciated. The revenue received will be recognized as rental income.

Answer 86

b) The profit from the selling transaction is deferred and recognized in the income statement over the lease contract. The FV of the asset is presented as a financial receivanle. The revenue received will be recognized as interest revenue.

Question 87

Financial Instruments –> Convertible Bonds:

Var har du minustecken?

Answer 87

• Interest paid
• Less equity effect
• Total interest cost
• Equity change