Chapter 4 190

C. Fair Value

According to IAS 16 (PPE), what is the term used to indicate the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction? A. Replacement cost B. Net Realizable Value C. Fair Value D. Historical cost

A. an expense on the income statement.

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: A. an expense on the income statement. B. a prior period adjustment to retained earnings. C. a credit to Revaluation Surplus. D.a debit to Revaluation Surplus.

B. Development costs

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 (Intangible Assets)? A. Research costs B. Development costs C. Neither research nor development D. It could be either research or development, depending on management's wishes.

D. They are non monetary and lack physical substance.

As defined by IAS 38, how are intangible assets unlike other assets? A. They must have arisen from past events. B. Their value cannot be reasonably measured. C. They must be controlled by enterprises. D. They are non monetary and lack physical substance.

A. Inventory should be increased (debited) by $ 3500.

Assume that subsequent to your adjustment the expected selling price increases to $13,000. (All the rest of the facts are the same) What adjustment to inventory should be made under IAS 2 after this event? A. Inventory should be increased (debited) by $ 3500. B. Inventory should be increased (debited) by $4000. C. No adjustment should be made to inventory once it is written down. D. Inventory should be increased (debited) by $1000.

C. As "Development Expense" on the Income Statement

Blanco Chemical Company spent 15,000,000 euros in development efforts to create a fertilizaer to whcih it was able to obtain a patent; however, the expected distribution cost make it infeasible to market the chemical in the foreseeable future. According to IAS 38 (Intangible Assets), how should Blanco Checial Company record the 15,000,000 euros? A. As a "Deferred Development Cost" on the Balance Sheet. B. As "Fertilizer Revenue" on the Income Statement C. As "Development Expense" on the Income Statement D. It should only be reported in the notes to the financial statements.

B. 6%

Camerata Construction borrowed 19,000,000 euros for 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 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? A. 5.5% B. 6% C. 5.75% D. Some other amount

C. impairment of goodwill.

A "bottom-up" test and "top-down" test must be applied under IASB standards to determine: A. impairment of tangible fixed assets. B. impairment of patents. C. impairment of goodwill. D. allocation of overhead cost.

A. U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs.

How does IAS 38 (Intangible Assets) differ from U.S. GAAP with respect to development costs? A. U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs. B. U.S. GAAP requires capitalization of development costs, whereas IAS 38 makes capitalization of these costs optional. C. US GAAP treats development costs part of "Goodwill", whereas IAS 38 treats these costs as an intangible asset. D. U.S. GAAP requires expensing of all development costs, and AIS 38 requires capitalizing all development costs.

D. All of the above are differences between IAS 36 and US GAAP.

How does the definition of asset impairment differ between IAS 36 and US GAAP? A. U.S GAAP does not consider selling price in determining impairment, but IAS 36 does. B. U.S. GAAP considers cash flows in assessing value of continued use, but does not discount them, whereas IAS 36 requires discounting in assessing asset impairment. C. Asset impairment is more likely to occur under IAS 36 than under U.S. GAAP. D. All of the above are differences between IAS 36 and US GAAP.

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

How does the treatment of borrowing costs under US GAAP differ from IFRS? A. US GAAP has no guidance for accounting treated related to borrowing costs B. US GAAP specifically includes foreign exchange gains and losses on foreign currency borrowings C. the definition of borrowing cost under US GAAP is broader in scope than the definition of interest cost D. US GAAP does not allow netting of interest income against interest cost

B. It should be added to the other cpst of acquiring foxed assets to determine the amount for the balance sheet.

How should the cost of borrowing funds to acquire or construct property, plant, and equipment be accounted for under IASB rules, a revised in 2007? A. It should be expensed in the period incurred. B. It should be added to the other cpst of acquiring foxed assets to determine the amount for the balance sheet. C. Both methods are acceptable. D. Neither method is acceptable under IASB rules.

B. No amortization is taken as long as the life is consolidation indefinite.

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 n amortization of the intangible asset's cost under IAS 38? A. Management may choose any number of years over which to amortize the cost. B. No amortization is taken as long as the life is consolidation indefinite. C. The cost of the asset should be amortized over 20 years. D. The cost of the asset should be expense in the period the intangible asset is acquired.

C. Revaluation Surplus-Building

If a Chien Bleu Ltd. puchased a buildiong in 2009 for 10,000,000 euros and as of December 31, 2015 had recorded accum,ulated deprecoation on the building of 3,000,000 euros. On December 31, 2015, the comapny conducted its first revaluation when the fair value was 12,000,000 euros. According to IAS 16, what account should be credited for 5,000,000 euros? A. Loss on Revaluation--Building B. Gain From Revaluation of Building C. Revaluation Surplus--Building D. Revaluation Revenue--Building

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

If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement: A. Annual revaluations must be performed on each c;ass of assets. B. It must update the valuation so that the balance sheet represents fair value on the balance sheet date. C. appraisals must be performed by an official of the IASB. D. the depreciated replacement cost must be used as the fair value of the fixed asset.

C. Pensions

In an Ernst & Young 2005 survey of 130 companies' Form 20-F filed with the SEC,what issue required adjustments by the greatest number of companies? A. Goodwill B. Leases C. Pensions D. Wages

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

In what way does IAS 16 (PPE) differ from US GAAP concerning foxed asset measurement subsequent to initial recognition? A. IAS 16 allows for upward revaluation of the asset based on fair value. B. IAS 16 does not allow accumulated depreciation to be shown on the obalance sheet. C. IAS 16 requires that fixed assets be carried at fair value less accumulated impairment losses. D. IAS 16 allows both upwards and downward revaluation of fixed assets, whereas US GAAP only allows upward revaluation.

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

In what way does the IASB standard on leases IAS 17 differ from US GAAP? A. it is less specific than US GAAP in terms of defining what constitutes a finance lease B. US GAAP requires more professional judgment in accounting for leases than does IAS 17 C. IAS 17 is more specific than US GAAP in defining an operating lease. D. Operating leases are capitalized under the IAS 17 but are not capitalized under US GAAP

C. It should be expensed currently.

Rive Rouge Confections Company incurred 5,000,000 euros to determine if chocolate could be made to resist melting by adding certain inert minerals to the mixture. According to IAS 38, how should Rive Rouge record this cost? A. It should be capitalized as a deferred development cost. B. It should be treated as a cost of products it currently markets. C. It should be expensed currently. D. It should be amortized over 20 years.

A. a credit to Revaluation Surplus-Building for 10,000,000

Synergy Ltd purchased a building in 2008 for 20,000,000 and as Dec 31, 2014 had recorded accumulated depreciation on the building of 6,000,000. On Dec 31, 2014 the company conducted its first revaluation when the fair value 24,000,000. Under IAS 16, the journal entry recorded on this date would include? A. a credit to Revaluation Surplus-Building for 10,000,000 B. a debit to Revaluation Surplus-Building for 14,000,000 C. a debit to Loss on Revaluation-Building for 14,000,000 D. a credit to Loss on Revaluation-Building for 10,,000,000

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

Through 50 years of high quality service, Domo Diagnostics Laboratory has created goodwill with its clients that management estimates is worth at least $20,000,000. Under IAS 38, how should this be recognized? A. An intangible asset "Goodwill" should be debited for $20,000,000. B. The $20,000,000 should be expensed over a period of 20 years. C. The $20,000,000 should be expensed over a period of 50 years D. It should not be recognized in Domo's accounting records at all.

B. the lease payment must be expenses by the lessee as they are incurred

in what way should operating leases be accounted for under IAS 17? A. the lease payments should be capitalized and shown on the balance sheet as an asset B. the lease payment must be expenses by the lessee as they are incurred C. IAS 17 is flexible allowing both capitalization and expensing of operating lease costs D. the lessee capitalizes the operating lease and the lessor expenses the lease.

D. first recognized as a reduction in any related revaluation surplus

Under IAS 16 Property, plant, and equipment subsequent revaluation decreases are? A. never recognized B. credited to a revaluation surplus statement C. recognized as an expense on the income statement D. first recognized as a reduction in any related revaluation surplus

A. defer it and amortize it into income over the life of the lease

Under IAS 17, in a sale-leaseback transaction, how must the initial owner treat any gain on a finance lease? A. defer it and amortize it into income over the life of the lease B. Recognize it in income immediately C. Defer it until the end of the lease term, including extensions D. He/she can choose to either defer it or recognize it in income immediately

C. The inventory write-down should be reverse to bring it on line with the new net realizable value.

Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling price subsequently increases? A. No adjustment is necessary. Once inventory is written down, it cannot be increased under IASB standards. B. It should be sold at the replacement cost. C. The inventory write-down should be reverse to bring it on line with the new net realizable value. D. Recovery of inventory loss should be debited top reflect the increases in inventory value.

C. market share

Under IAS 38 which of the following items might qualify for capitalization as internally generated intangible assets? A. brands B. publishing titles C. market share D. customer list

C. Customer lists

Under IAS 38, which of the following items is specifically EXCLUDED from being recognized as an internally generated intangible asset? A. Computer software costs. B. Copyrights C. Customer lists D. Motion picture films

B. recognized in current income

Under IAS 40 Investment Property gains or losses from revaluation are: A. recognized in revaluation surplus B. recognized in current income C. not permitted D. recognized either in current income or revaluation surplus at the option of management

D. $0

Under U.S GAAP, if the carrying value of a fixed asset was $50000, the undiscounted expected future cash flows was $55000, this discounted expected future cash flows was $51000, and the selling price was $53000, what is the amount of impairment loss? A. $5000 B. $3000 C. $1000 D. $0

B. capitalized as part of the fixed asset cost.

Under U.S. GAAP, interest loans secured to acquire fixed assets must be: A. expensed in the period they are incurred. B. capitalized as part of the fixed asset cost. C. either expensed currently or capitalized as part of the fixed asset cost. D. charged against revenue in the year the asset is put into service.

C. when replacement cost is greater than the net realizable value

Under what circumstances both US GAAP and IAS 2 will provide similar result with respect to inventory valuation? A. when historical cost is greater than the net realizable value. B. when replacement cost is lower than historical cost C. when replacement cost is greater than the net realizable value D. when normal profit margin is less than 15%

C. Pattern of economic benefits to be derived from the asset.

What should be the basis for choosing depreciation methods for fixed asset under IAS 16 (PPE)? A. Tax minimization B. Profit maximization C. Useful life of the fixed asset C. Pattern of economic benefits to be derived from the asset.

D. All of the above may be different between IFRS and U.S. GAAP

What types of differences can cause issues between International Financial Reporting Standards and U.S. GAAP? A. Measurement B. Alternatives available C. Disclosure D. All of the above may be different between IFRS and U.S. GAAP

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

When the patent or trademark is acquired in a business combination, what does IAS 38 say about recording these intangibles? A. If they has not been previously recorded as separate assets by the acquired company, they should always be recorded as "Goodwill" on the balance sheet of the company acquiring them. B. The cost of the intangibles should be expense by the acquiring company on the merger date. C. They should be recorded as separate intangible assets only if their useful life is indefinite. D. They should be recorded as separate intangible assets if their fair value can be reliably measured .

A. LIFO

Which of the following inventory valuation methods, commonly used under the U.S. GAAP, is NOT allowed under IAS 2 (Inventories)? A. LIFO B.FIFO C. Weighted average D. Retail inventory method.

B. U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based.

Which of the following is generally true about the differents between U.S. GAAP and IFRS? A. U.S. GAAP is more flexible than IFRS B. U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based. C. More professional judgment is required to apply U.S. GAAP than is required for implementing IFRS. D. In all casese, U.S. GAAP is more detailed than the IFRS.

D. All of these should be considered part of the cost of the asset.

Which of the following items should be included in the cost of property, plant, and equipment under IAS 16? A. All cost directly attributable to getting the asset to the proper location. B. Import duties and taxes C. Estimated costs of removing the asset. D. All of these should be considered part of the cost of the asset.

B. 82000

The following information was taken from the foxed asset records of Bosco Ltd. as of December 31, 2010: In euros Carrying value 100,000 Selling price 85,000 Cost of disposal 3,000 Expected future cash flows 75,000 Present value of expected future cash flows 63000 A. 85000 B. 82000 C. 63,000 D. 75000

A. 18,000

The following information was taken from the foxed asset records of Bosco Ltd. as of December 31, 2010: In euros Carrying value 100,000 Selling price 85,000 Cost of disposal 3,000 Expected future cash flows 75,000 Present value of expected future cash flows 63000 Using IAS 36, what is the amount of impairment loss? A. 18,000 B. 37,000 C. 15000 D. 25000

D. 25000

The following information was taken from the foxed asset records of Bosco Ltd. as of December 31, 2010: In euros Carrying value 100,000 Selling price 85,000 Cost of disposal 3,000 Expected future cash flows 75,000 Present value of expected future cash flows 63000 What is the amount of impairment loss under US GAAP? A. 37,000 B. 18000 C. 15000 D. 25000

A. $9000

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 A. $9000 B. $8500 C. $9500 D. $10,000

C. $9500

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 AIS 2, what should the balance sheet report for Inventory? A. $9000 B. $8500 C. $9500 D. $10,000

B. 8500

The following inventory information was taken from the records of Kleinfeld Inc: Historical cost $12000 Replacement cost 7000 Expected selling price 9000 Expected selling cost 500 Normal profit margin 50% of price Under IAS 2, what should the balance sheet report for inventory? A. 7000 B. 8500 C. 7600 D. 9000

C. $7000

The following inventory information was taken from the records of Kleinfeld Inc: Historical cost $12000 Replacement cost 7000 Expected selling price 9000 Expected selling cost 500 Normal profit margin 50% of price Under U.S. GAAP, what should the balance sheet report for inventory? A. $9000 B. $8500 C. $7000 D. $10,000

B. Income under US GAAP will be lower by $1700

The following inventory information was taken from the records of a foreign corporation whose stocks is listed on am exchange in the U.S. Historical cost $15,000 Replacement cost $11,000 Expected selling price $13,500 Expected selling cost $800 Normal profit margin $2500 How will income under the U.S. GAAP compare to income the company reported under IFRS after reconciliation? A. income will not be affected by the reconciliation. B. Income under US GAAP will be lower by $1700 C. Income under US GAAP will be lower by $2500 D. Income under US GAAP will be equal to income under IFRS.