Verified Test Bank | Ch4 + International Financial Reporting - Complete Test Bank | International Accounting 5e by Doupnik and Perera by Timothy Doupnik, Hector Perera. DOCX document preview.
International Accounting, 5e (Doupnik)
Chapter 4 International Financial Reporting Standards: Part I
1) 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.
Difficulty: 2 Medium
Topic: Types of Differences Between IFRS and U.S. GAAP
Learning Objective: 04-01 Discuss the types of differences that exist between International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP).
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
2) Which of the following is generally true about the differences 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 cases, U.S. GAAP is more detailed than the IFRS.
Difficulty: 1 Easy
Topic: Types of Differences Between IFRS and U.S. GAAP
Learning Objective: 04-01 Discuss the types of differences that exist between International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP).
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) 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
Difficulty: 1 Easy
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
4) 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?
A) $9,000
B) $8,500
C) $9,500
D) $10,000
Difficulty: 2 Medium
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) 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 U.S. GAAP, what should the balance sheet report for Inventory?
A) $9,000
B) $8,500
C) $9,500
D) $10,000
Difficulty: 3 Hard
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) 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?
A) $7,000
B) $8,500
C) $7,600
D) $9,000
Difficulty: 2 Medium
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) 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 (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 $3,500.
B) Inventory should be increased (debited) by $4,000.
C) No adjustment should be made to inventory once it is written down.
D) Inventory should be increased (debited) by $1,000.
Difficulty: 3 Hard
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) 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 U.S. GAAP, what should the balance sheet report for Inventory?
A) $9,000
B) $8,500
C) $7,000
D) $10,000
Difficulty: 3 Hard
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) The following inventory information was taken from the records of a foreign corporation whose stock is listed on an 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 | $2,500 | |
| ||
The following inventory information was taken from the records of a foreign corporation whose stock is listed on an exchange in the U.S. 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 U.S. GAAP will be lower by $1,700.
C) Income under U.S. GAAP will be lower by $2,500.
D) Income under U.S. GAAP will be equal to income under IFRS.
Difficulty: 3 Hard
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) 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 reversed to bring it in line with the new net realizable value.
D) Recovery of inventory loss should be debited to reflect the increase in inventory value.
Difficulty: 2 Medium
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) What should be the basis for choosing depreciation methods for fixed assets under IAS 16 (Property, Plant, and Equipment)?
A) Tax minimization
B) Profit maximization
C) Useful life of the fixed asset
D) Pattern of economic benefits to be derived from the asset
Difficulty: 2 Medium
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) According to IAS 16 (Property, Plant and Equipment), 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
Difficulty: 1 Easy
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
13) Which of the following items should be included in the cost of property, plant, and equipment under IAS 16?
A) All costs 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.
Difficulty: 1 Easy
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
14) In what way does IAS 16 (Property, Plant, and Equipment) differ from U.S. GAAP concerning fixed 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 balance sheet.
C) IAS 16 requires that fixed assets be carried at fair value less accumulated impairment losses.
D) IAS 16 allows both upward and downward revaluation of fixed assets, whereas U.S. GAAP only allows upward revaluation.
Difficulty: 1 Easy
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
15) If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:
A) annual revaluations must be performed on each class 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.
Difficulty: 2 Medium
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
16) 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 account should be credited for €5,000,000?
A) Loss on Revaluation—Building
B) Gain From Revaluation of Building
C) Revaluation Surplus—Building
D) Revaluation Revenue—Building
Difficulty: 2 Medium
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
17) 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.
Difficulty: 1 Easy
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
18) 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 (Intangible Assets), how should Blanco Chemical Company record the €15,000,000?
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.
Difficulty: 3 Hard
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
19) 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 nonmonetary and lack physical substance.
Difficulty: 1 Easy
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
20) 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?
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 considered indefinite.
C) The cost of the asset should be amortized over 20 years.
D) The cost of the asset should be expensed in the period the intangible asset is acquired.
Difficulty: 1 Easy
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
21) When a patent or trademark is acquired in a business combination, what does IAS 38 say about recording these intangibles?
A) If they had 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 expensed 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.
Difficulty: 1 Easy
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
22) 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.
Difficulty: 2 Medium
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
23) 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
Difficulty: 1 Easy
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
24) 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) U.S. GAAP treats development costs as part of "Goodwill", whereas IAS 38 treats these costs as an intangible asset.
D) U.S. GAAP requires expensing of all development costs, and IAS 38 requires capitalizing all development costs.
Difficulty: 1 Easy
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
25) 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.
Difficulty: 3 Hard
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) Rive 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 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.
Difficulty: 3 Hard
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) How does the definition of asset impairment differ between IAS 36 and U.S. 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 U.S. GAAP.
Difficulty: 2 Medium
Topic: Impairment of Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
28) 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 |
Costs of disposal | €3,000 |
Expected future cash flows | €75,000 |
Present value of expected future cash flows | €63,000 |
| |
Using IAS 36, what is the amount of impairment loss?
A) €18,000
B) €37,000
C) €15,000
D) €25,000
Difficulty: 3 Hard
Topic: Measurement of Impairment Loss
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
29) 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 |
Costs of disposal | €3,000 |
Expected future cash flows | €75,000 |
Present value of expected future cash flows | €63,000 |
| |
What is the amount of impairment loss under U.S. GAAP?
A) €37,000
B) €18,000
C) €15,000
D) €25,000
Difficulty: 3 Hard
Topic: Measurement of Impairment Loss
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
30) 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 |
Costs of disposal | €3,000 |
Expected future cash flows | €75,000 |
Present value of expected future cash flows | €63,000 |
| |
Using IAS 36, what is the recoverable amount?
A) €85,000
B) €82,000
C) €63,000
D) €75,000
Difficulty: 3 Hard
Topic: Measurement of Impairment Loss
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
31) Under U.S. 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?
A) $5,000
B) $3,000
C) $1,000
D) $0
Difficulty: 2 Medium
Topic: Measurement of Impairment Loss
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
32) 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 costs.
Difficulty: 3 Hard
Topic: Impairment of Goodwill
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
33) How should the cost of borrowing funds to acquire or construct property, plant, and equipment be accounted for under IASB rules, as revised in 2007?
A) It should be expensed in the period incurred.
B) It should be added to the other costs of acquiring fixed assets to determine the amount for the balance sheet.
C) Both methods are acceptable.
D) Neither method is acceptable under IASB rules.
Difficulty: 3 Hard
Topic: Borrowing Costs
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Evaluate
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
34) Under U.S. GAAP, interest on 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.
Difficulty: 2 Medium
Topic: Borrowing Costs
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
35) Camerata Construction borrowed €19,000,000 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 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
Difficulty: 2 Medium
Topic: Borrowing Costs
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
36) 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.
Difficulty: 1 Easy
Topic: Investment Properties
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
37) Under IAS 16 (Property, Plant, and Equipment), subsequent revaluation decreases are:
A) never recognized.
B) credited to a revaluation surplus account.
C) recognized as an expense on the income statement.
D) first recognized as a reduction in any related revaluation surplus.
Difficulty: 2 Medium
Topic: Property, Plant, and Equipment
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
38) How does the treatment of borrowing costs under U.S. GAAP differ from IFRS?
A) U.S. GAAP has no guidance for accounting treatment related to borrowing costs.
B) U.S. GAAP specifically includes foreign exchange gains and losses on foreign currency borrowings.
C) The definition of borrowing costs under U.S. GAAP is broader in scope than the definition of interest cost under IAS 23.
D) U.S. GAAP does not allow netting of interest income against interest cost.
Difficulty: 1 Easy
Topic: Borrowing Costs
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
39) Under what circumstance will both U.S. GAAP and IAS 2 provide a 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%
Difficulty: 2 Medium
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.; 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
40) 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 lists
Difficulty: 1 Easy
Topic: Internally Generated Intangibles
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
41) Synergy Ltd. purchased a building in 2008 for €20,000,000 and as of December 31, 2014 had 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:
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.
Difficulty: 2 Medium
Topic: Revaluation Model
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
42) Memphis Ltd. purchased a building in 2015 for €11,000,000 and as of December 31, 2018 had recorded accumulated depreciation on the building of €4,000,000. On December 31, 2018, the company conducted its first revaluation when the fair value was €27,000,000. Under IAS 16, the journal entry recorded on this date would include:
A) a credit to Revaluation Surplus—Building for €20,000,000.
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 €20,000,000.
Difficulty: 2 Medium
Topic: Revaluation Model
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
43) How do IFRS and U.S. GAAP differ in their approach to allowing reversals of inventory write-downs?
A) If they had 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 expensed 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) IFRS requires the reversal of write-downs from cost to net realization value (NRV) when the selling price increases. U.S. GAAP prohibits the reversal of past write-downs.
Difficulty: 1 Easy
Topic: Inventories
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
44) What is effective control?
A) Assets bought and paid for with Cash.
B) Assets bought and paid for with Account Receivables.
C) Controlling a majority of voting shares of the subsidiary's stock.
D) Effective control is control over a subsidiary exercised through means other than controlling a majority of voting shares of the subsidiary's stock.
Difficulty: 2 Medium
Topic: Business Combinations and Consolidated Financial Statements
Learning Objective: 04-07 Describe IFRS requirements for determining effective control and the scope of consolidation.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
45) How is control determined when a parent company does not own a majority of the voting stock of a subsidiary?
A) Controlling the subsidiary's investing activities.
B) Controlling the subsidiary's operating activities.
C) Controlling the subsidiary's financing activities.
D) Criteria that establish effective control include control of the subsidiary's senior management or board of directors, the control of the subsidiary's operating, investing, or financing activities, and the right to obtain control by buying more shares after a triggering event.
Difficulty: 2 Medium
Topic: Business Combinations and Consolidated Financial Statements
Learning Objective: 04-07 Describe IFRS requirements for determining effective control and the scope of consolidation.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
46) Which intangible assets are subject to annual impairment testing?
A) Definite-lived intangible assets.
B) Definite-lived tangible assets.
C) Indefinite-lived intangible assets.
D) Indefinite-lived intangibles and goodwill are subject to impairment testing at least annually.
Difficulty: 2 Medium
Topic: Intangible Assets
Learning Objective: 04-03 Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
47) What are the three major types of intangible assets?
A) Externally generated.
B) Exchanged.
C) Internally generated.
D) The three types of intangible assets are: (1) purchased, (2) acquired in a business combination, and (3) internally generated.
Difficulty: 2 Medium
Topic: Intangible Assets
Learning Objective: 04-02 Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment (PPE); and intangibles.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
48) How does accounting for bearer plants differ from that for other biological assets?
A) Companies always revalue bearer plants, as they are required to do for all other biological assets.
B) Companies never revalue bearer plants, because of their nature.
C) Companies treat bearer plants as goodwill.
D) Companies treat bearer plants as PPE. Thus, they choose between the cost and revaluation models for these assets. The treatment of bearer plants constitutes an important exception to the requirement that companies revalue biological assets.
Difficulty: 3 Hard
Topic: Biological Assets
Learning Objective: 04-05 Explain how investment property and biological assets differ from PPE and what special rules govern their accounting treatment under IFRS.
Bloom's: Analyze
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Document Information
Connected Book
Complete Test Bank | International Accounting 5e by Doupnik and Perera
By Timothy Doupnik, Hector Perera
Explore recommendations drawn directly from what you're reading
Chapter 2 Worldwide Accounting Diversity
DOCX Ch. 2
Chapter 3 International Convergence Of Financial Reporting
DOCX Ch. 3
Chapter 4 International Financial Reporting Standards Part I
DOCX Ch. 4 Current
Chapter 5 International Financial Reporting Standards Part Ii
DOCX Ch. 5
Chapter 6 Foreign Currency & Hedging
DOCX Ch. 6