IFRS quiz
Coronado Industries issued 7600, 5-year convertible bonds of $2,000 each for $3550000 at the beginning of 2021. The bonds have a stated rate of interest of 9% and interest is payable annually. Each bond can be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt is 10%.
$ 134644
The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge$800,000Search for application of new research findings400,000Salaries of research staff designing new laser bone scanner1,200,000Material, labor and overhead costs of prototype laser scanner850,000Costs of testing prototype and design modifications450,000Engineering costs incurred to advance the laser scanner to full production stage (technological feasibility reached)700,000 Identify which of these are research phase items and will be immediately expensed under GAAP and IFRS.
$1,200,000. $1,200,000
Bramble, a technology company that uses IFRS for its financial reporting, has been found to have polluted the property surrounding its plant. The property is leased for 12 years and Bramble has agreed that when the lease expires, the pollution will be remediated before transfer back to its owner. The lease has a renewal option for another 8 years. If this option is exercised, the cleanup will be done at the end of the renewal period. There is a 70% chance that the lease will not be renewed and the cleanup will cost $252000. There is 30% chance that the lease will be renewed and the cleanup costs will be $512000 at the end of the 20 years. If you assume that these estimates are derived from best estimates of likely outcomes and the risk-free rate is 4%, the expected present value of the cleanup provision is: (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
$180281
Bonita Industries owns a trade name that was purchased in an acquisition of Sandhill Co.. The trade name has a book value of $1750000, but according to IFRS, it is assessed for impairment on an annual basis. To perform this impairment test, Bonita must estimate the fair value of the trade name. It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Bonita's estimate of annual cash flows over the next 7 years. The trade name is assumed to have no residual value after the 7 years. (Assume the cash flows occur at the end of each year.)
$1843137
What is the expected value of the warranty cost provision?
$263340
Vaughn Manufacturing offers its 100 employees to participate in an employee share-purchase plan. Under the terms of plan, employees are entitled to purchase 10 shares at 10% discount. The par values of shares were $10. Overall, 60 employees accepted the offer and each employee purchased six shares. The market price on purchase date was $90.
$28800
The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge$800,000Search for application of new research findings400,000Salaries of research staff designing new laser bone scanner1,200,000Material, labor and overhead costs of prototype laser scanner850,000Costs of testing prototype and design modifications450,000Engineering costs incurred to advance the laser scanner to fullproduction stage (technological feasibility reached)700,000 Identify which of these are development phase items and will be immediately expensed under GAAP and IFRS.
$3,200,000. $2,500,000
Vaughn Manufacturing leased an office under a five-year contract, which has been accounted for as an operating lease. Faced with the downturn in the economy, the viable company decided to sub-lease the office. However, they have had no luck with this effort and the landlord will not allow the lease to be cancelled. The payments are $10600 per year and there are four years left on the lease. The company's most recent interest rate for financing from a bank is 8%. The risk-free rate on government bonds is 6%. What is the provision for the lease under IFRS? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
$35109
Waterway Industries issued 8200, 5-year convertible bonds of $2000 each for $4100000 at the beginning of 2021. The bonds have a stated rate of interest of 10% and interest is payable annually. Each bond can be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt is 11%.
$3948669
Sunland Company offers its 100 employees to participate in an employee share-purchase plan. Under the terms of plan, employees are entitled to purchase 12 shares at 11% discount. The par values of shares were $10. Overall, 70 employees accepted the offer and each employee purchased six shares. The market price on purchase date was $110.
$41118
Under IFRS, what is the inventory carrying value on December 31, 2020?
$440
Boston Company owns more than 50 percent of the ordinary shares of Dynamic Company. Assume Boston net income of $221000 is allocated as $176800 to Boston and $44200 to noncontrolling interest. In Boston's consolidated income statement that includes Dynamic, under IFRS, how will the amount of non-controlling interest be reported?
$44200 will be presented as an allocation of net income below the net income.
Under IFRS, which of the following would be the correct measurement value for the inventory?
$450
Under IFRS, what is the inventory carrying value on June 30, 2021?
$500
State Company manufactured a machine at a cost of $80,000. The product is sold for $88,000 at a 5% discount. The delivery costs are estimated to be $8,000. Under IFRS, how much should be the carrying amount of this inventory?
$75,600
Bramble Corp. leased an office under a six-year contract, which has been accounted for as an operating lease. Faced with the downturn in the economy, the viable company decided to sub-lease the office. However, they have had no luck with this effort and the landlord will not allow the lease to be cancelled. The payments are $20000 per year and there are five years left on the lease. The company's most recent interest rate for financing from a bank is 7%. The risk-free rate on government bonds is 3%. What is the provision for the lease under IFRS? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
$82004
IFRS permits companies to carry assets at historical cost or use a revaluation model for fixed assets. According to IAS 16, if revaluation is used:
1 and 2 are correct.
Bonita Company uses IFRS and owns property, plant and equipment with a historical cost of 5310000 euros. At December 31, 2019, the company reported a valuation reserve of 8650000 euros. At December 31, 2020, the property, plant and equipment was appraised at 5545000 euros.The valuation reserve at December 31, 2020 will be reported at
235000 euros on the Income Statement.
Oriole Company manufactures exercise equipment. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3650000 of 11% bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. What is the selling price of the bonds? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
3930556
Swifty Corporation maintains its accounting records using IFRS. The company recently signed a lease for a new office building, for a lease period of 8 years. Under the lease agreement, a security deposit of $22000 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 12% per year. What amount will the company receive at the time the lease expires?
54471
Swifty Company uses IFRS and owns property, plant and equipment with a historical cost of 5140000 euros. At December 31, 2019, the company reported a valuation reserve of 8590000 euros. At December 31, 2020, the property, plant and equipment was appraised at 5545000 euros.The property, plant and equipment will be reported on the December 31, 2020 statement of financial position at
5545000 euros.
Alonzo Company in Italy prepares its financial statements in accordance with IFRS. In 2020, it reported cost of goods sold of €600 million and average inventory of €100 million. What is Alonzo's average days to sell inventory?
60.8 days
Sunland Company maintains its accounting records using IFRS. The company purchases equipment with a price of $370000. The manufacturer has offered a payment plan that would allow Sunland to make 10 equal annual payments of $45617, with the first payment due one year after the purchase.How much total interest will Sunland pay on this payment plan?
86170
Vaughn Manufacturing, a company who maintains its accounting records using IFRS, manufactures furniture. Vaughn sells an order to Save-A Lot Furniture in exchange for a zero-interest-bearing $84000 note due from the customer in two years. Since there is no stated interest rate on the note, the controller uses the current market rate of 8% to derive the present value. Based on this information and the incorporation of the time value of money, which of the following would be recorded by Vaughn to recognize this sale?
A debit to Notes Receivable for $72017.
Which of the following differs in GAAP and IFRS?
Accounting for convertible debt
Under IFRS,
All of these answer choices are correct.
The IFRS criteria for recognizing a transfer of a receivable focuses on which of the following?
All of these answers choices are correct.
Under IFRS, what is recorded as compensation expense for all employee share-purchase plans?
Amount of discount
Swifty Corporation has a loan receivable with a carrying value of $14600 at December 31, 2019. On January 3, 2020, the borrower, Cullumber Company, declares bankruptcy, and Swifty estimates that it will collect only 60% of the loan balance.Which of the following entries would Swifty make to record the impairment under IFRS?
Bad Debt Expense5840 Provision for Doubtful Accounts5840
Marigold Corp. has a loan receivable with a carrying value of $131000 at December 31, 2019. On January 1, 2020, the borrower, Cullumber Company, declares bankruptcy, and Marigold estimates that it will collect only 45% of the loan balance.Which of the following entries would Marigold make to record the impairment under IFRS?
Bad Debt Expense72050 Provision for Doubtful Accounts72050
Where is the authoritative IFRS guidance related to accounting and reporting for inventories found?
Both IAS2 and IAS 41.
Which of the following statements about IFRS and U.S. GAAP accounting and reporting requirements for the balance sheet is not correct?
Both IFRS and U.S. GAAP require that property, plant and equipment be revalued on the balance sheet.
Under IFRS, which of the following current assets will be listed last in a statement of financial position?
Cash
Which of the following statements is correct?
Component depreciation is required under IFRS and permitted under GAAP.
Under IFRS, how are convertible debt recorded?
Convertible debt is separated into equity component and debt component.
Icon International, a software company, incorporated on January 1, 2019 is planning to convert to IFRS. The company decided to present its first IFRS statements for the year ended December 31, 2021. What is the reporting date of Icon International?
December 31, 2021
Starfish Company (a company using GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?
During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO.
Which of the following is an element of financial statements identified under IFRS?
Equity
Under IFRS, a decrease in economic benefit that results in a decrease in equity is termed as a(an):
Expense.
The primary IFRS related to intangible assets and impairments is found in
IAS 38 and IAS 36.
Which of the following standards specifically addresses issues related to cash?
IAS No.1 (Presentation of Financial Statements)
With regard to recognizing stock-based compensation
IFRS and GAAP follow the same model.
Which of these statements regarding the IFRS and GAAP is correct?
IFRS is considered to be "principles-based" and less detailed than GAAP.
Convertible bonds are separated into the equity component of the bond issue and the debt component under
IFRS only.
With regard to contracts that can be settled in either cash or shares
IFRS requires that share settlement must be used.
Match the approach and location where gains and losses from non-trading securities are reported:
IFRS. Equity
Which of the following is the first step to be taken by a company deciding to convert to IFRS?
Identifying the timing of first IFRS statement
Authoritative standards for IFRS include:
International Financial Reporting Standards and International Accounting Standards only.
Which of the following is a similarity between GAAP and IFRS with respect to accounting for inventories?
Inventory acquisitions are accounted for at historical cost.
Icon International, a software company, incorporated on January 1, 2019 is planning to convert to IFRS. The company decided to present its first IFRS statements for the year ended December 31, 2021. What is the transition date of Icon International?
January 1, 2020
Under IFRS, which of the following is used to measure a liability, if a range of estimates is predicted and no amount in the range is more likely than any other amount in the range?
Mid-point of the range
Sheridan Company has a loan receivable with a carrying value of $14400 at December 31, 2019. On January 3, 2020, the borrower, Carla Vista Co., declares bankruptcy, and Sheridan estimates that it will collect only 70% of the loan balance.Assume that on January 5, 2021, Sheridan learns that Carla Vista Co. has emerged from bankruptcy. As a result, Sheridan now estimates that all but $1440 will be repaid on the loan. Under IFRS, which of the following entries would be made on January 5, 2021?
Provision for Doubtful Accounts2880 Bad Debt Expense2880
Assume that on January 4, 2021, Sunland learns that Blossom Company has emerged from bankruptcy. As a result, Sunland now estimates that all but $11700 will be paid on the loan. Under IFRS, which of the following entries would be made on January 4, 2021?
Provision for Doubtful Accounts64500 Bad Debt Expense64500
Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment's carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result. If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using GAAP for its external financial reporting, which of the following is true?
Rushia is prohibited from recording the recovery in value of the impaired investment.
Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment's carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result. If Rushia Company determines that the fair value of the investment is now $2,900,000 and is using IFRS for its external financial reporting, which of the following is true?
Rushia may record a recovery of $600,000.
Which of the following organizations have committed to develop high-quality, compatible accounting standards that could be used for domestic and cross-border financial reporting.
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
Which of the following organizations is not among the four international standard-setting organizations?
The Financial Executives Institute (FEI)
Which of the following organizations selects members for the IASB?
The International Accounting Standards Committee Foundation
Which of the following is true of expense classification under IFRS?
The nature-of-expense method does not classify the expenses into various subtotals.
A major difference between GAAP and IFRS with respect to accounting for inventories pertains to:
The use of LIFO cost flow assumption.
Which of the following is a reason for recasting prior financial statements based on IFRS?
To provide financial statement users with comparable information
All of the following are differences between IFRS and U.S. GAAP in accounting for liabilities except:
U.S. GAAP, but not IFRS uses the term "provisions" for contingent liabilities which are accrued.
Bonita Industries maintains its accounting records using IFRS. The company purchases equipment with a price of $490000. The manufacturer has offered a payment plan that would allow Bonita to make 10 equal annual payments of $54550, with the first payment due one year after the purchase.Bonita could borrow $490000 from its bank to finance the purchase at an annual rate of 4%. Should Bonita borrow from the bank or use the manufacturer's payment plan to pay for the equipment?
Use the manufacturer's payment plan.
For which of the following areas a provision may be recognized in the financial statement?
Warranties
Which of the following statements is true regarding IFRS and inventories?
With respect to inventories, IFRS defines market as net realizable value.
The accounting for treasury stock retirements under IFRS requires
a charge for the excess to paid-in capital, depending on the original transaction related to the issuance of the stock.
In measuring an impairment loss, IFRS uses
a fair value test.
Discontinued operations of a component of a business are classified as a separate item in the income statement:
after "income from continuing operations".
In accounting for internally generated intangible assets, GAAP requires that
all costs be expensed.
Acceptable depreciation methods under IFRS include
all of these answers are correct.
IFRS and GAAP
are similar in the accounting for impairments of assets held for disposal.
IFRS 1 requires information in a company's first IFRS statement to:
be transparent.
Similarities between IFRS and U.S. GAAP requirements for balance sheet presentation include all of the following except:
both require that changes to the valuation reserve be disclosed in the notes to the financial statements.
If a company prepares a consolidated income statement, IFRS requires that net income be reported for:
both the controlling and the noncontrolling interest.
Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed:
by the financial reporting date.
Under GAAP, impairment losses
cannot be reversed for assets to be held and used.
Under IFRS, costs in the development phase are
capitalized once technological feasibility is achieved.
Swifty Corporation applies revaluation accounting to plant assets with a carrying value of $1620000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1530000.
credit to Unrealized Gain on Revaluation for $315000.
Sheffield Corp. applies revaluation accounting to plant assets with a carrying value of $1840000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1750000.
debit to Depreciation Expense for $460000.
Sheffield Corp. applies revaluation accounting to plant assets with a carrying value of $1730000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1590000.
debit to Depreciation Expense for $530000.
The purpose of the International Accounting Standards Board is to:
develop a single set of high-quality financial reporting standards.
The Revaluation Surplus of IFRS is
different than GAAP in that it allows the increase in valuation.
The IFRS income statement classification of expenses by nature results in descriptions which include all of the following except
distribution.
IFRS generally assumes that all restructurings be accounted for as:
extinguishments of debt.
An IFRS statement might include all of the following except
extraordinary gain or loss.
Both IFRS and U.S. GAAP permit valuation of long-term debt and other liabilities at
fair value with gains and losses on changes in fair value recorded in income in certain situations.
IFRS requires an impairment loss for a loan receivable to be recognized when
its recoverable amount is less than its carrying amount.
IFRS uses a fair value test to measure impairment loss. However, IFRS does not use the first-stage recoverability test under GAAP - comparing the undiscounted cash flow to the carrying amount. As a result, the IFRS test is
more strict than GAAP.
Coronado Industries applies revaluation accounting to plant assets with a carrying value of $1670000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1560000.
plant assets $1560000.
Contingent assets need not be disclosed in the financial statements or in the notes if they are:
possible but not probable to occur.
The IASB and the FASB are working on a joint project that has an objective of developing a conceptual framework that leads to standards that are:
principle-based and internally consistent.
The accounting exchanges of nonmonetary assets has recently converged between IFRS and GAAP, now requires
that gains on exchanges of nonmonetary assets be recognized if the exchange has commercial substance.
The IASB's standard-setting structure includes all of the following except
the Standards Comparison Committee
Under IFRS, current assets are listed in:
the reverse order of liquidity.
Key similarities between GAAP and IFRS include all of the following except
the same criteria is used to recognize a transfer of a receivable.
IFRS allows reversal of impairment losses when
there has been a change in economic conditions or in the expected use of the asset.
IFRS requires bond issue costs:
to be netted against the carrying amount of the bonds.
As in GAAP, under IFRS the costs associated with research and development are segregated into
two components, the research phase and the development phase.
Examples of contingent assets include all of the following except:
unrealized gain on the sale of investments.
Under IFRS compliance requirements the Revaluation Surplus is
utilized to record the changes in property, plant, and equipment and intangible assets.