Wiley

Question 1

IFRS define investment property as

Answer 1

as property held to earn rentals, for capital appreciation, or both.

Examples of investment property also include land held for long-term appreciation, land held for an undetermined future use, buildings owned by the entity, or a vacant building held to be leased under an operating lease.

Investment property does not include property used in the business, property being constructed or developed for others, property under construction that will be future investment property, and property held for sale in the normal course of business.

Question 2

IFRS ivestment property valued at cost model requires what?

Answer 2

The cost model (CM) requires investment property to be carried on the balance sheet at cost less accumulated depreciation and less accumulated impairment losses. If an entity chooses the cost model, it must still disclose fair values in the notes to the financial statements.

Question 3

International Financial Reporting Standards (IFRS)

Answer 3

Accounting for error correction is similar to US GAAP. A prior period error includes arithmetic mistakes, mistakes in applying accounting policies, and mistakes in recognition, measurement, presentation or disclosures in the financial statements. IFRS requires the entity to correct the error by restating the comparative amounts for prior periods. If the error occurred before the earliest period presented, then the opening balances of assets, liabilities, and equity should be restated for the earliest period presented. Similar to US GAAP, if it is impracticable to determine the periodic effects of the error, comparative information is restated from the earliest date practicable.

Question 4

How should acquisition cost be accounted for? capitalized or expensed?

Answer 4

Acquisition-related costs for a business acquisition are normally treated as expense in the period in which the costs are incurred or the services are received. Acquisition-related costs may include finder’s fees, advisory, legal, accounting, valuation, consulting and other professional fees. Costs of registering and issuing common stock are normally netted against the proceeds of the stock and reduce the paid in capital in excess of par account. Bond issue costs are treated as a deferred charge and amortized on a straight-line basis over the life of the bond.

Although the costs of registering and issuing debt and equity securities are considered part of acquisition costs, these costs are not expensed in the period of the acquisition, but are recognized in accordance with other GAAP. **********

Question 5

The fraction $.90/1 expresses the direct exchange rate. It means that $.90 can be exchanged for 1 Canadian dollar.How do you compute indirect exchange rent?

Answer 5

$1/.90

Question 6

under IFRS, the three types of hedge classification are:

Answer 6

The three types of hedge classification under IFRS are cash flow hedge, fair value hedge, and hedge of net investment.

Question 7

If indirect method is used, supplemental disclosure are required to report:

Answer 7

The amount of interest paid and the amount of income taxes paid.

Question 8

What should the Acquisition of intangibles be recorded at?

Answer 8

Acquisition of intangibles. Purchased intangibles should be recorded at cost, which represents the fair value of the intangible at time of acquisition. Internally developed intangibles are written off as research and development expense; an exception is the cost to register a patent.

Question 9

identify where in its financial statements a company should disclose information about its concentration of credit risks.

Answer 9

concentration of credit risks should be disclosed in the notes to the financial statements.

Question 10

enterprise-wide disclosure regarding external customers.

Answer 10

disclosure is required of the fact that the company receives 10% or more of its revenue from a single customer.

Question 11

How are completed contract and percentaged of completion billed?

Answer 11

For both methods, when progress billings are sent, “Billings on construction in progress” is credited for the amount billed. This is shown on the balance sheet as a contra account to Construction in progress.

Question 12

how do you account for cost on long-term contracts?

Answer 12

Construction-in-progress.

capitalize the cost.

Question 13

long term contract profit should be recognized in?

Answer 13

construction in progress

Question 14

What is a CIP?

Answer 14

The “construction in progress” (CIP) account is a cost accumulation account similar to “work in process” for job-order costing, except that the percentage-of-completion method includes interim profits in the account. The “billings on LT contracts” account is similar to an unearned revenue account. At each financial statement date, the “construction in progress” account should be netted against the “billings on LT contracts” account on a project-by-project basis, resulting in a net current asset and/or a net current liability.

Question 15

calculate book value per share?

Answer 15

book value per share is calculated as the total owners’ equity divided by the number of common shares outstanding,

Question 16

how is the discount rate used for pension accounting determined?

Answer 16

by the market yield at the end of the reporting period for high-quality corporate bonds having a similar term or maturity.

Question 17

Under US GAAP, the discount rate used

Answer 17

is the “settlement rate” (the rate at which the plan’s obli­gations could be settled).

Question 18

what’s the difference between bond issue cost and stock issue cost?

Answer 18

stock issue cost reduces APIC while bond issue cost is deferred.

Question 19

Dividends or dividend equivalents on options which vest?

Answer 19

Dividends or dividend equivalents on options which vest are to be accounted for as other dividends—that is, charged against retained earnings—but those paid on options which do not vest are deemed to be compensation expense.

Question 20

derivative instruments should be valued at:

Answer 20

Fair value measurement. Derivative instruments meet the definition of assets and liabilities (probable future economic benefits or sacrifices of future economic benefits resulting from past transactions or events). As such they should be reported on an entity’s financial statements. The most relevant measure for reporting financial instruments is “fair value. The standard defines fair value as the “current amount at which a financial instrument could be exchanged in a transition between willing parties.” As a corollary to this principle, gains and losses that result from the change in the fair value of derivative instruments are not assets and liabilities. Therefore, gains and losses should not be reported on the balance sheet but rather should either appear in comprehensive income or be reported in current earnings.

Question 21

in the equity method, how do you account for excess of FV of amortizable assets over BV?

Answer 21

amortized by full amount against investments.

Question 22

The Consumer Price Index used what kind of basis?

Answer 22

The Consumer Price Index is used to compute information on a “constant dollar” basis. The index is used to restate financial statement elements to dollars which have the same purchasing power.

Question 23

What are liquidating dividends?

Answer 23

When accumulated net income is less than dividends declared.

ex. Troquel’s share of the dividend is $10,500 ($70,000 × 15%). However, Troquel’s share of Zafacon’s earnings since acquisition is only $9,000 ($60,000 × 15%). Thus, only $9,000 can appropriately be recorded as investment income.

investment income can only be up to the amount of net income totaled. the rest is a return on investment.

Question 24

FV derivative instruments should be disclosed in:

Answer 24

in the body of the financial statements or in the notes, of the fair value of financial instruments for which it is practicable to estimate that value. Methods and significant assumptions used to make the estimate should also be disclosed. Quoted market prices, if available, are the best estimate of fair value.

Question 25

How should EPS be reported on the cash flow statement?

Answer 25

NOT.

This answer is correct. ASC Topic 230 specifically states that financial statements should not report an amount of cash flow per share. Such reporting might imply that cash flow is an indicator of a business’ performance, which it is not.

Question 26

how are convertible bonds accounted for?

Answer 26

Under IFRS, convertible debt must be separated into its debt and equity components. To do this, discount the bond at market interest rates as in US GAAP. The liability component is the discounted amount and the equity component is the residual of the cash received less the discounted amount. Calculations are as follows:

Cash $2,000,000
Bonds Payable $1,760,431
Equity – conversion option $239,569

Question 27

if an operation cycle is under 12 months, account for current asset in which way? ex. 6 months cycle.

Answer 27

12 months at least. if the cycle is longer, use the longer.

Question 28

For an unrecognized firm commitment to qualify as a hedged item it must

Answer 28

1. Be binding on both parties.
2. Be specific with respect to all significant items.
3. Contain a nonperformance clause that makes performance probable.

Question 29

sales commission is based on

Answer 29

based on cause and effect.

Question 30

Systematic and rational allocation if benefits are

Answer 30

produced in certain future periods (e.g., asset depreciation)

amortization of intangible assets is an item that is recognized in a systematic and rational manner. Systematic and rational allocation is one of the three pervasive expense recognition principles.

Question 31

IFRS, a capital lease is called:

Answer 31

finance lease

Question 32

This answer is correct. Nongovernmental, not-for-profit entities should prepare the following financial statements:

Answer 32

1. Statement of financial position
2. Statement of activities
3. Statement of cash flows

In addition, a voluntary health and welfare organization should also prepare a statement of functional expenses.

Question 33

IFRS income statement, minimum disclosure:

Answer 33

This answer is correct. The income statement may be prepared by presenting expenses either by nature or by function. The minimum required disclosures on the income statement include income, finance costs, share of profits and losses using the equity method, tax expense, discontinued operations, profit or loss, noncontrolling interests in profits and losses, and the net profit (loss) attributable to equity holders of the parent.

Question 34

The projected benefit obligation:

Answer 34

The projected benefit obligation is the present value of pension benefits accrued to date using assumptions as to future compensation levels.

Question 35

what interest rate is used to discount both the exercise price of the option and the future dividend stream?

Answer 35

the risk-free interest rate.

Question 36

deficits accumulated during the development stage of a company should be:

Answer 36

This answer is correct. Per ASC Topic 915, a development stage company shall use the same generally accepted accounting principles that apply to established operating enterprises to govern the recognition of revenue and to determine whether a cost is to be capitalized or expensed as incurred. Accordingly, capitalization or deferral of costs shall be subject to the same assessment that would be applicable in an established operating enterprise. Thus, deficits accumulated during the development stage would not be capitalized, rather they will be reported as part of stockholders’ equity.

Question 37

???

Answer 37

When a company uses the effective interest method to amortize a discount on bonds payable, interest expense (which is based on the carrying value of the bonds) is lower in earlier years when compared to interest expense under the straight-line method. Therefore, the straight-line method results in understated retained earnings. Since more interest expense is recorded under the straight-line method, amortization of the discount on bonds payable will be greater under the straight-line method when compared to the effective interest method. Higher amortization results in a lower unamortized discount and, therefore, the carrying value of the bonds using the straight-line method is overstated.

Question 38

IFRS requires revaluation of PP&E how often every year?

Answer 38

This answer is correct. IFRS does not provide requirements as to the frequency or date of revaluation of plant, property, and equipment.

Question 39

IFRS requires cash advances and loans from bank overdrafts to be classified as

Answer 39

operating activities.

Question 40

how should equity A/P be accounted for? at 30% ownership.

Answer 40

This answer is correct. Under the equity method intercompany profits and losses are eliminated. However, receivables and payables are not eliminated as they are in the case of consolidated financial statements. On the December 31, year 2 balance sheet, Pulham should separately disclose the total amount of the receivable. Additionally, this receivable should be shown separately from other receivables.

Question 41

The three costs incurred by a lessee with respect to capital leases are

Answer 41

interest expense, amortization expense, and executory costs. Each payment consists of principal reduction and interest expense. The amount capitalized must be amortized over the useful life of the asset. Executory costs, such as insurance, maintenance, etc., are borne by the lessee. The basic premise in capital leases is the risks and responsibilities of ownership are transferred from lessor to lessee.

Question 42

how often FVTPL remeasured each year?

Answer 42

If an asset is classified as fair value through profit or loss (FVTPL), it is remeasured to fair value at the end of each accounting period, and any profit or loss is recorded in that period.

Question 43

The elements of SEA reporting include

Answer 43

Ideally a governmental entity should: (1) establish and communicate clear, relevant goals and objectives, set measurable targets for accomplishment, and develop and report indicators that measure it progress. The elements of SEA reporting include measures of service effort, measures of service accomplishments (output and outcome measures), measures that relate service efforts to service accomplishments (efficiency and cost-outcome measures) and narrative or explanatory information.

Question 44

when disclosure of fair values is required?

Answer 44

The requirement is to determine when disclosure of fair values is required. According to ASC 825-10-25, disclosure of the fair values of an entity’s financial instruments is required when it is practicable to estimate the values. The provisions of ASC 825-10-50 also indicate that the statement applies only to material items.

Question 45

what happens when sinking funds are used to buy investments? its extra revenue generated?

Answer 45

t. Businesses occasionally accumulate a fund of cash and/or investments for a specific purpose, such as the retirement of bonds in this problem. These funds are referred to as “sinking funds.” The sinking fund is increased when periodic additions are made to the fund and when revenue is earned on the investments held in the fund. When cash is used to purchase investments, the components of the fund change (i.e., cash is invested and replaced by bonds or other securities), but the total fund balance is not affected.