ACC 520 - Chapter 4

Which of the following items should be included in the cost of PP&E under IAS 16?

All costs directly attributable to getting the asset to the proper location, import duties and taxes, and estimated costs of removing the asset.

According to IAS 16, a decrease in the carrying amount of a fixed asset that is identified on an asset's first revaluation should be recorded as

An expense on the income statement.

According to IFRS 8, which is NOT one of the three criteria for defining an operating segment?

An operating segment can't merely be a lessor

Blanco Chemical company spent 15,000,000 in development efforts to create a fertilizer for which it was able to obtain a patent; however, the expected distribution costs make it infeasible to market the chemical in the foreseeable future. According to IAS 38, how should Blanco Chemical Company record the 15,000,000?

As "development expense" on the Income Statement

How should the cost of borrowing funds to acquire or construct PP&E be accounted for under IASB rules, as revised in 2007?

Capitalized as part of the fixed asset cost

Under US GAAP, interest on loans to acquire fixed assets must be

Capitalized as part of the fixed asset cost

The following information was taken from the fixed asset records of BOsco Ltd. as of December 31, 2010: Carrying Value: 100,000 Selling Price: 85,000 Cost of disposal: 3,000 Expected future cash flow: 75,000 Present value of expected cash flows: 63,000 Using IAS 36, what is the amount of impairment loss?

Carrying Value: 100,000 Recoverable amount: Higher of an asset's fair value less costs of disposal (net selling price) and its value in use. 85,000-3,000 = 82,000 100,000 - 82,000 = 18,000

The following information was taken from the fixed asset records of BOsco Ltd. as of December 31, 2010: Carrying Value: 100,000 Selling Price: 85,000 Cost of disposal: 3,000 Expected future cash flow: 75,000 Present value of expected cash flows: 63,000 What is the amount of impairment loss under US GAAP?

Carrying value - Expected future cash flows 100,000 - 75,000 = 25,000

The following inventory information was taken from the records of Kleinfeld Inc.: Historical Cost: 12,000 Replacement Cost: 7,000 Expected Selling Price: 9,000 Expected Selling Cost: 500 Normal profit margin: 50% of price Under US GAAP what should the balance sheet report for inventory?

$7,000 (current replacement cost but should not exceed net realizable value (9,000 - 500 = 8,500 or be lower than net realizable value less a normal profit margin (9,000 - 4,500 = 4,500)

The following inventory information was taken from the records of Kleinfeld Inc.: Historical Cost: 12,000 Replacement Cost: 7,000 Expected Selling Price: 9,000 Expected Selling Cost: 500 Normal profit margin: 50% of price Under IAS 2 what should the balance sheet report for inventory?

$8,500 (lower of cost or net realizable value)

The following inventory information was taken from the records of GlobeKom Ltd. : Historical Cost: 12,000 Replacement Cost: 9,000 Expected Selling price: 10,000 Expected Selling cost: 500 Normal Profit Margin: 10% of selling price Under US GAAP, what should the balance sheet report for Inventory?

$9,000 (current replacement cost but should not exceed net realizable value (10,000 - 500 = 9,500 or be lower than net realizable value less a normal profit margin (9,500 - 1,000 = 8,500)

The following inventory information was taken from the records of GlobeKom Ltd. : Historical Cost: 12,000 Replacement Cost: 9,000 Expected Selling price: 10,000 Expected Selling cost: 500 Normal Profit Margin: 10% of selling price Under IAS 2, What should the balance sheet report for inventory?

$9,500 (Lower of cost (historical) or net realizable value: Selling Price 10,000 - Selling cost $500 = $9,500)

How does the definition of asset impairment differ between IAS 36 and US GAAP?

1. US GAAP Does not consider selling price in determining impairment, IAS 36 does. 2. US GAAP considers cash flow in assessing value of continued use, but does not discount them, whereas IAS 36 requires discounting in assessing asset impairment. 3. Asset impairment is more likely to occur under IAS 36 than under US GAAP

Under US GAAP, if the carrying value of a fixed asset was 50,000, the undiscounted expected future cash flows was 55,000, the discounted expected future cash flows was 51,000, and the selling price was 53,000, what is the amount of impairment loss?

50,000 - 55,000 = (5,000) Zero (carrying value is lower than expected future cash flow therefore no impairment exists.)

Camerata Construction borrowed 19,000,000 over 10 years at 6% specifically to modernize its operations with new equipment. The average rate of interest on Camerata's debt after considering the most recent loan was 5.5%. What rate of interest should be used for capitalizing the borrowing costs on the new equipment under IAS 23?

6%

Under IAS 17, in a sale-leaseback transaction, how much the initial owner treat any gain on a finance lease?

Defer it and amortize it into income over the life of the lease

Agro-World Technologies Inc. incurred 1,000,000 to construct a pilot plant to study the feasibility of building agricultural machinery more inexpensively for emerging economies. How would this cost be classified under IAS 38?

Development costs

What is net realizable value?

Estimated selling price less estimated selling costs

According to IAS 16, what is the term used to indicate the amount for which an asset could be exchanged between knowledgable, willing parties in an arm's length transaction?

Fair value

Under IAS 16, subsequent revaluation decreases are:

Fire recognized as a reduction to any related revaluation surplus

In which ways does IAS 16 differ from US GAAP concerning fixed asset measurement subsequent to initial recognition?

IAS 16 allows for upward revaluation of the asset based on fair value.

Which of the following is true about the IASB standards on statement of cash flows?

IAS 7 requires essentially the same information in the statement of cash flows as US GAAP.

A "bottom-up" test and "top-down test must be applied under IASB standards to determine:

Impairment of goodwill

The following inventory information was taken from the records of a foreign corporation whose stock is listed on an exchange in the US. Historical Cost: 15,000 Replacement Cost: 11,000 Expected Selling Price: 13,500 Expected Selling Cost: 800 Normal Profit Margin: 2,500 How will income under the US GAAP compare to income reported under IFRS after reconciliation?

Income under US GAAP will be lower by $1,700. IFRS: 13,500 - 800 = 12,700 US GAAP: Lower of replacement cost or net realizable value, but not lower than net realizable value less a normal profit margin. 13,500 - 800 - 2,500 = 10,200 US GAAP = 11,000 12,700 - 11,000 = 1,700

The following inventory information was taken from the records of Kleinfeld Inc.: Historical Cost: 12,000 Replacement Cost: 7,000 Expected Selling Price: 9,000 Expected Selling Cost: 500 Normal profit margin: 50% of price Assume that subsequent to your adjustment the expected selling price increases to $13,000. What adjustment to inventory should be made under IAS 2 after this event?

Inventory should be increased (debit) by $3,500 (13,000 - 9,000 = 4,000 - 500 selling cost = $3,500)

In what way does the IASB standard on leases (IAS 17) deffer from US GAAP?

It is less specific than US GAAP in terms of defining what constitutes a finance lease.

If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement

It must update the valuation so that the balance sheet represents fair value on the balance sheet date

Rove Rouge Confections Company incurred 5,000,000 to determine if chocolate could be made to resist melting by adding certain inert minerals to the mixture. According to IAS 30, how should Rive Rouge record this cost?

It should be expensed currently.

Through 50 years of high quality service, Domo Diagnostics Laboratory has creased goodwill with its clients that management estimates is worth at least 20,000,000. Under IAS 38, how should be be recognized?

It should not be recognized in Domo's accounting records at all.

Which of the following inventory valuation methods, commonly used under the US GAAP, is NOT allowed under IAS 2?

LIFO

Under a joint exposure draft issued by the IASB and FASB in 2010, what is one of the most significant proposals?

Leases would no longer be classified as finance or operating.

Under IAS 38, which of the following items might qualify for capitalization as internally generated intangible assets?

Market share

What types of differences can cause issues between International Financial Reporting Standards and US GAAP?

Measurement, alternatives available, and disclosure

IAS 38 states that an intangible asset is deemed to have an indefinite life when there is no foreseeable end to the expected cash flows the asset is likely to generate. What is the impact of an indefinite life on amortization of the intangible asset's cost under IAS 38?

No amortization is taken as long as the life is considered indefinite.

IASB standards address related party transactions. According to these standards, which of the following is considered a "related party"?

Parent companies, subsidiary companies, key members of management

What should be the basis for choosing depreciation methods for fixed assets under IAS 16?

Pattern of economic benefits to be derived from the asset.

In an Ernst & Young 2005 survey of 130 companies' Forms 20-F filed with the SEC, what issue required adjustments by the greatest number of companies?

Pensions

Under IAS 40, gains or losses from revaluation are

Recognized in current income

Under IAS 10, adjusting events that occur after the balance sheet date are:

Recognized through adjustment of the financial statements

The following information was taken from the fixed asset records of BOsco Ltd. as of December 31, 2010: Carrying Value: 100,000 Selling Price: 85,000 Cost of disposal: 3,000 Expected future cash flow: 75,000 Present value of expected cash flows: 63,000 using IAS 36, what is the recoverable amount?

Recoverable amount: Higher of an asset's fair value less costs of disposal (net selling price) and its value in use. 85,000-3,000 = 82,000

Chien Bleu, Ltd. purchased a building in 2009 for 10,000,000 and as of December 31, 2015 had recorded accumulated depreciation on the building of 3,000,000. On December 31, 2015, the company conducted its first revaluation when the fair value was 12,000,000. According to IAS 16, what accounting should be credited for 5,000,000?

Revaluation Surplus - Building

As defined by IAS 38, how are intangible assets unlike other assets?

They are non-monetary and lack physical substance.

What do IASB standards say about related party transactions?

They must be disclosed in the notes to the financial statements

When a patent or trademark is acquired in a business combination, what does IAS 38 say about recording these intangibles?

They should be recorded as separate intangible assets if their fair value came be reliably measured.

How does IAS 38 differ from US GAAP with respect to development costs?

US GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs

How does the treatment of borrowing costs under US GAAP differ from IFRS?

US GAAP does not allow netting of interest income against interest cost

What is one major difference between IFRS and US GAAP relative to discontinued operations.

US GAAP requires both pre-tax and after-tax profit and loss on discontinued operations to be reported on the income statement

Which of the following is generally true about the differences between US GAAP and IFRS?

US GAAP tends to be more rules-based and IFRS tend to be principles-based

How does IAS 34 differ from US GAAP?

US GAAP treats interim periods as an integral part of the full year

What is one major difference between IFRS and US GAAP relative to correction of errors?

Under IFRS, if it's impractical to restate financial statements, then no restatement is necessary.

Under what circumstance, but US GAAP and IAS 2 will provide similar result with respect to inventory valuation?

When replacement cost is greater than the net realizable value

Syngery Ltd. purchased a building in 2008 for 20,000,000 and as of December 31, 2014 has recorded accumulated depreciation on the building of 6,000,000. On December 31, 2014, the company conducted its first revaluation when the fair value was 24,000,000. Under IAS 16, the journal entry recorded on this date would include:

Credit to Revaluation Surplus for 10,000,000 (20,000,000 - 6,000,000 = 14,000,000-24,000,000 = 10,000,000)

Under IAS 38, which of the following items is specifically EXCLUDED from being recognized as an internally intangible asset?

Customer lists

Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling price subsequently increases?

The inventory write-down should be reversed to bring it in line with the new net realizable value

In what way should operating leases be accounted for under IAS 17?

The lease payments must be expensed by the lessee as they are incurred.