IAS 8      

ABC Inc. changes its method of valuation of inventories from weighted-average method to FIFO method. ABC Inc. should account for this change as

(a)     A change in estimate and account for it prospectively

(b)    A change in accounting policy and account for it prospectively

(c)     A change in accounting policy and account for it retrospectively

(d)    Account for it as a correction of an error and account for it retrospectively

(c)     A change in accounting policy and account for it retrospectively

IAS 8      

      Change in accounting policy does not include

(a)     Change in useful life from ten years to seven years

(b)    Change of method of valuation of inventory from FIFO to weighted-average

(c)     Change of method of valuation of inventory from weighted-average to FIFO

(d)    Change from the practice (convention) of paying as Christmas bonus on month’s salary to staff before the end of the year to the new practice of paying one-half month’s salary only

(a)     Change in useful life from ten years to seven years

IAS 8    

      When a public shareholding company changes an accounting policy voluntarily, it has to

(a)     Inform shareholders prior to taking the decision

(b)    Account for it retrospectively

(c)     Treat the effect of the change as extraordinary item

(d)    Treat it prospectively and adjust the effect of the change in the current period and future periods

(b)    Account for it retrospectively

IAS 8    

      An entity wishes to accelerate its depreciation policy because of changes in the useful life of the asset. How should the change be dealt with?

(a)     By retrospective restatement

(b)    By retrospective application

(c)     By prospective application

(d)    By disclosure of an error

(c)     By prospective application

IAS 8    

(d)    IFRS, IFRICs and the Framework

IAS 10

     ABC Inc. decided to operate a new amusement park that will cost $1 million to build in the year 2009. Its financial year-end is December 31, 2009. ABCE Inc. has applied for a letter of guarantee for $700,000. The letter of guarantee was issued on March 31, 2010. The audited financial statements have been authorized to be issued on April 18, 2010. The adjustment required to be made to the financial statement for the year ended December 31, 2009, should be

(a)     Booking a $700,000 long-term payable

(b)    Disclosing $700,000 as a contingent liability in 2009 financial statement

(c)     Increasing the contingency reserve by $700,000

(d)    Do nothing  

(d)    Do nothing  

IAS 10

      At the balance sheet date, December 31, 2009, ABC Inc. carried a receivable from XYZ, a major customer, at $10 million. The “authorization date” of the financial statements is on February 16, 2006. XYZ declared bankruptcy on Valentine’s Day (February 14, 2010). ABC Inc. will

(a)     Disclose the fact that XYZ has declared bankruptcy in footnotes

(b)    Make a provision for this post-reporting period event in its financial statements (as opposed to disclosure in footnotes)

(c)     Ignore the event and wait for the outcome of the bankruptcy because the event took place after the year-end

(d)    Reverse the sale pertaining to this receivable in the comparatives for the prior period and treat this as an “error” under IAS #8

(b)    Make a provision for this post-reporting period event in its financial statements (as opposed to disclosure in footnotes)

IAS 10

      ABC Inc. built a new factory building during 2005 at a cost of $20 million. At December 31, 2009, the net book value of the building was $19 million. Subsequent to year-end, on March 15, 2010, the building was destroyed by fire and the claim against the insurance company proved futile because the cause of the fire was negligence on the part of the caretaker of the building. If the date of authorization of the financial statements for year ended December 31, 2009, was March 31, 2010, ABC Inc. should

(a)     Write off the net book value to its scrap value because the insurance claim would not fetch any compensation

(b)    Make a provision for one-half of the net book value of the building

(c)     Make a provision for three-fourths of the net book value of the building based on prudence

(d)    Disclose the non-adjusting event in the footnotes

(d)    Disclose the non-adjusting event in the footnotes

IAS 10

      ABC Inc. deals extensively with foreign entities, and its financial statements reflect these foreign currency transactions. Subsequent to the balance sheet date, and before the “date of authorization” of the issuance of the financial statements, there were abnormal fluctuations in foreign currency rates. ABC Inc. should

(a)     Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in foreign exchange rates

(b)    Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign exchange rates (and not just adverse movements)

(c)     Disclose the post-balance sheet event in footnotes as a non-adjusting event

(d)    Ignore the post-balance sheet event

(c)     Disclose the post-balance sheet event in footnotes as a non-adjusting event

IAS 12

      Which of the following items is treated differently under accounting for taxation guidance of U.S. GAAP and IFRS?

(a)     Reporting an extraordinary item in the income statement, net of direct tax effects

(b)    Reporting a deferred tax asset for a future deductible amount

(c)     Reporting a deferred tax liability for a future taxable amount

(d)    Reporting a deferred tax asset for a net operating loss

(a)     Reporting an extraordinary item in the income statement, net of direct tax effects

IAS 12

      An entity acquired plant and equipment for $6 million on 1/1/2009. The asset is depreciated at 25% a year on the straight-line basis, and local tax legislation permits the management to depreciate the asset at 30% a year for tax purposes. Calculate any deferred tax liability which might arise on the plant and equipment at 12/31/2009, assuming a tax rate of 30%.

(a)     $500,000

(b)    $600,000

(c)     $300,000

(d)    $250,000

(c)     $300,000

IAS 12

      An entity has spent $10 million in developing a new product. These costs meet the definition of an intangible asset under IAS #38 and have been recognized in the statement of financial position. Local tax legislation allows these costs to be deducted for tax purposes when they are incurred and, therefore, they have been recognized as an expense for tax purposes. At the year-end the intangible asset is deemed to be impaired by $3 million. What is the tax base of the intangible asset at the accounting year-end?

(a)     $10 million

(b)    $3 million

(c)     $7 million

(d)    Zero

(d)    Zero

IAS 12

  Which of the following examples would not give rise to a temporary difference?

(a)     Accrued method is used for accounting purposes whilst an installment method is used for tax purpose to recognize revenues

(b)    The carrying value of an asset on initial recognition differs from its initial tax base

(c)     Depreciation used for accounting purposes whilst an accelerated method is use for tax purposes

(d)    Warranty costs recognized for accounting purposes but not recognized foe tax purposes until paid

(b)    The carrying value of an asset on initial recognition differs from its initial tax base

IAS 12

      An entity has calculated its deferred tax provision as $7 million. It feels that if discounting is taken into account, the provision would only need to be $5 million. The provision does not take into account a dividend receivable, which has been recognized in its own financial statements for $1.5 million from an 80%-owned subsidiary. The dividend is not taxable in the country in which the entity operates. The tax rate is 30%. What is the deferred tax provision in the financial statements of the entity?

(a)     $5 million

(b)    $7 million

(c)     $5.45 million

(d)    $7.45 million

(b)    $7 million

IAS 17

      The classifications of a lease as either an operating or finance lease is based on

(a)     The length of the lease

(b)    The transfer of the risks and rewards of ownership

(c)     The minimum lease payments being at least 50% of the fair value

(d)    The economic life of the asset

(b)    The transfer of the risks and rewards of ownership

IAS 17

      The accounting concept that is principally used to classify leases into operating and finance is

(a)     Substance over form

(b)    Prudence

(c)     Neutrality

(d)    Completeness

(a)     Substance over form

IAS 17

      The classification of a lease is normally carried out

(a)     At the end of the lease term

(b)    After a “cooling off” period of one year

(c)     At the inception of the lease

(d)    When the entity deems it to be necessary

(c)     At the inception of the lease

IAS 17

      Which is the correct accounting treatment for an operating lease payment in the accounts of the lease?

(a)     Dr.             Cash

 Cr.             Operating lease rentals

(b)    Dr.             Operating lease rentals

 Cr.             Cash

(c)     Dr.             Asset account

 Cr.             Cash

(d)    Dr.             Cash

 Cr.             Asset account

(b)    Dr.             Operating lease rentals

 Cr.             Cash

IAS 17

      Which is the correct accounting treatment for a finance lease in the accounts of a lessor?

(a)     Treat as a noncurrent asset equal to net investment in lease. Recognize all finance payments in statement of comprehensive income

(b)    Treat as a receivable equal to gross amount receivable on lease. Recognize finance payments in cash and by reducing debtor

(c)     Treat as a receivable equal to net investment in the lease. Recognize finance payment by reducing debtor and take interest to statement of comprehensive income

(d)    Treat as a receivable equal to net investment in the lease. Recognize finance payments in cash and by reduction of debtor

(c)     Treat as a receivable equal to net investment in the lease. Recognize finance payment by reducing debtor and take interest to statement of comprehensive income

IAS 17

      Lessors should show assets that are out on operating leases and income from there as follows:

(a)     The assets should be kept off the statement of financial position and the lease income should go to reserves

(b)    The asset should be kept off the statement of financial position and the lease income should go to the statement of comprehensive income

(c)     The asset should be shown in the statement of financial position according to its nature and the lease income should go to reserves

(d)    The asset should be shown in the statement of financial position according to its nature with the lease income going to the statement of comprehensive income

(d)    The asset should be shown in the statement of financial position according to its nature with the lease income going to the statement of comprehensive income

IAS 17

      Which term is not used by IAS #17?

(a)     Operating lease

(b)    Capital lease

(c)     Finance lease

(b)    Capital lease

IAS 19

      Which of these events will cause a change in a defined benefit obligation?

(a)     Changes in mortality rate or the proportion of employees taking early retirement.

(b)    Changes in the estimated salaries or benefits that will occur in the future.

(c)     Changes in the estimated employee turnover.

(d)    Changes in the discount rate used to calculate defined benefit liabilities and the value of assets.

(e)     All of the above.

(e)     All of the above.

IAS 19

     Which of these elements are taken into account when determining the discount rate to be used?

(a)     Market yields at the statement of financial position date on high-quality corporate bonds

(b)    Investment or actuarial risk

(c)     Specific risk associated with the entity’s business

(d)    Risk that future experiences may differ from actuarial assumptions.

(a)     Market yields at the statement of financial position date on high-quality corporate bonds

IAS 19

      Which of these assets should be included within the valuation of plan assets?

(a)     Unpaid contributions

(b)    Unlisted corporate bonds that are redeemable but not transferable without the entity’s permission

(c)     A loan to the entity that cannot be assigned to a third party

(d)    Investments in listed companies.

(d)    Investments in listed companies.

IAS 19

      An entity operates a defined benefit pension plan and changes it on 1/1/2014, to a defined contribution plan.  The defined benefit pension plan still relates to past service but not to future service.  The net pension liability after the plan amendment is 70 million, and the net pension liability before the amendment was $100 million.  How should the entity account for this change?

(a)     The entity recognizes a gain of $30 million.

(b)    The entity does not recognize a gain.

(c)     The entity recognizes a gain of $30 million over the remaining service lives of the employees.

(d)    The entity recognizes the gain but applies the 10% corridor approach to it

(a)     The entity recognizes a gain of $30 million.

100M - 70M = 30M gain

IAS 24

      Which of the following is not a related party as envisaged by IAS #24?

(a)     A director of the entity

(b)    The parent company of the entity

(c)     A shareholder of the entity that holds 1% stake in the entity

(d)    The son of the chief executive officer of the entity

(c)     A shareholder of the entity that holds 1% stake in the entity

IAS 24

      IAS #24 requires disclosure of compensation of key management personnel. Which of the following would not be considered “compensation” for this purpose?

(a)     Short-term benefits

(b)    Share-based payments

(c)     Termination benefits

(d)    Reimbursement of out-of-pocket expenses

(d)    Reimbursement of out-of-pocket expenses

IAS 24

      To enable financial statement users to form a view about the effects of the related-party transactions, IAS #24 requires certain disclosures to be made. Which of the following disclosures is not a mandated disclosure under IAS #24?

(a)     Relationships between parents and subsidiaries irrespective of whether there have been transactions between those related parties

(b)    Name of all the “associates” that an entity has dealt with during the year

(c)     Name of the entity’s parent and, if different, the ultimate controlling party

(b)    Name of all the “associates” that an entity has dealt with during the year

IAS 24

      If there have been related-party transactions during the year, an entity needs to make, at a minimum, certain disclosures. Which of the following is not a required minimum disclosure under IAS #24?

(a)     The amount of the related-party transactions

(b)    The Amount of outstanding related-party balances and their terms and conditions along with details of guarantees given and received

(c)     The amounts of similar transactions with unrelated (third) parties to establish that comparable related-party transactions have been entered at arm’s length

(d)    Provisions for doubtful debts related to the amount of outstanding related-party balances and expense recognized during the year in respect of bad or doubtful debts due from related parties

(c)     The amounts of similar transactions with unrelated (third) parties to establish that comparable related-party transactions have been entered at arm’s length

IAS 26

      IAS #26 deals

(a)     Employers’ accounting for the cost of retirement benefits

(b)    General-purpose financial statements of financial reports of retirement benefit plans

(c)     Only defined contribution plans and not defined benefit plans

(d)    Only defined benefit plans and not defined contribution plans

(b)    General-purpose financial statements of financial reports of retirement benefit plans

IAS 26

      In rare circumstances, when a retirement benefit plan has attributes of both defined contribution and defined benefit plans, according to IAS #26 it is deemed

(a)     Defined benefit plan

(b)    Defined contribution plan

(c)     Neither a defined benefit nor a defined contribution plan

(d)    For aspects of the hybrid plan that are similar to a defined benefit plan: provisions of IAS #26 applicable to such plans are to be applied; for aspects of the hybrid plan that are similar to a defined contribution plan, provisions of IAS #26 that apply to such plans are to be applied

(a)     Defined benefit plan

IAS 26

      In the case of a defined benefit plan, IAS #26

(a)     Makes it incumbent upon the plan to obtain an actuarial valuation

(b)    Does not make it incumbent upon the plan to obtain an actuarial valuation

(c)     Allows the plan to estimate the present value of future benefits based on valuations done by other similar plans

(d)    Allows the plan to add a percentage based on consumer price index to the previous year’s valuation of actuarial valuation

(b)    Does not make it incumbent upon the plan to obtain an actuarial valuation

IAS 21

    Which of these considerations would not be relevant in determining the entity’s functional currency?

(a)     The currency that influences the costs of the entity.

(b)    The currency in which finance is generated.

(c)     The currency in which receipts from operating activities are retained.

(d)    The currency that is the most internationally acceptable for trading

(d)    The currency that is the most internationally acceptable for trading

IAS 21

      An entity started trading in country A, whose currency was the dollar.  After several years the entity expanded and exported its product to country B, whose currency was the euro. The functional currency of the entity was deemed to be the dollar but by the end of 2014, 80% of the business was conducted in country B using the euro.  (At the end of 2013, 30% of the business was conducted in the euro.)  The functional currency should.

(a)     Remain the dollar.

(b)    Change to the euro at the beginning of 2014.

(c)     Change to the euro at the end of 2014.

(d)    Change to the euro at the end of 20114 if it is considered that the underlying transactions, events, and conditions of business have changed.

(d)    Change to the euro at the end of 20114 if it is considered that the underlying transactions, events, and conditions of business have changed.

IAS 21  

(a)    The dollar

IAS 21  

      An entity purchases plant from a foreign supplier for Euro 3 million on 1/31/2013, when the exchange rate was Euro2 = $1.  At the entity’s year-end of 3/31/2013, the amount has not been paid.  The closing exchange rate was Euro1.5 = $1.  The entity’s functional currency is the dollar.  Which of the following statements is correct?

(a)     Cost of plant $2 million, exchange loss of $0.5 million, trade payable $1.5 million

(b)    Cost of plant $1.5 million, exchange loss $0.6 million, trade payable $2 million

(c)     Cost of plant $1.5 million, exchange loss $0.5 million, trade payable $2 million

(d)    Cost of plant $2 million, exchange loss $0.5 million, trade payable $2 million

(c)     Cost of plant $1.5 million, exchange loss $0.5 million, trade payable $2 million

IAS 29  

      An entity has several subsidiaries that operate in a hyperinflationary economy, which uses the ABC as its local currency.  Management wishes to show the financial statements in US dollars.  Many of the operations of the entity are within countries that are not hyperinflationary, and these subsidiaries use the euro as their functional currency.  What currency should the entity use to present its consolidated financial statements?

(a)     US dollars

(b)    The ABC

(c)     The euro

(d)    The entity may use any currency

(d)    The entity may use any currency

IAS 29        

An entity has a subsidiary that operates in a hyperinflationary economy.  The subsidiary’s financial statements are measured in terms of the local currency, which is the ABC.  The subsidiary’s financial statements have been restated in accordance with IAS #29.  The parent is located in the United States and prepares the consolidated financial statements in US dollars.  Which of the following accounting procedures is correct in terms of the consolidation of the subsidiary’s financial statements?

(a)     The subsidiary’s financial statements should be prepared using the ABC and then retranslated into US dollars.

(b)    The subsidiary’s financial statements should be prepared using the ABC, then restated according to IAS #29, and then retranslated into US dollars at closing rates

(c)     The subsidiary’s financial statements should be re-measured in US dollars, then restated according to IAS #29 and consolidated.

(b)    The subsidiary’s financial statements should be prepared using the ABC, then restated according to IAS #29, and then retranslated into US dollars at closing rates

IAS 29         

An entity is trying to determine which assets and which liabilities are monetary and nonmonetary.  Which of the following assets or liabilities are nonmonetary?

(a)     Trade receivables

(b)    Prepaid insurance and rent

(c)     Accrued expenses and other payables

(d)    Taxes payable

(b)    Prepaid insurance and rent

IAS 28

      An entity has bought a 25% share in another entity with a view to selling that investment within six months. The investment has been classified as held-for-sale in accordance with IFRS #5. How should this investment be treated in the final year accounts?

(a)     It should be equity accounted

(b)    The assets and liabilities should be presented separately from other assets in the statement of financial position under IFRS #5

(c)     The investment should be dealt with under IAS #29

(d)    Purchase accounting should be used for this investment

(b)    The assets and liabilities should be presented separately from other assets in the statement of financial position under IFRS #5

IAS 28

      The Standard does not require the equity method to be applied when the associate has been acquired and held with a view to its disposal within a certain time period. What is the period within which the associate must be disposed of?

(a)     Six months

(b)    Twelve months

(c)     Two years

(d)    In the near future

(b)    Twelve months

IAS 28

      What accounting method should be used for an investment in an associate where it is operating under severe long-term restrictions – for example where the government of a company has temporary control over the associate?

(a)     IAS #39 should be applied

(b)    The equity method should be applied if significant influence can be exerted

(c)     The associate should be shown at cost

(d)    Proportionate consolidation should be used

(b)    The equity method should be applied if significant influence can be exerted

IAS 28

      An investor sells inventory for cash to a 25% associate. The inventory cost the investor $6 million and is sold to the associate for $10 million. None of the inventory has been sold at year-end. How much of the profit on the transaction would be reported in the group accounts?

(a)     $4 million

(b)    $1 million

(c)     $3 million

(d)    zero

(c)     $3 million

(10M - 6M) - (4M x 25%) = 3M

IAS 33

      Entity A has an ordinary “A” class, non-voting share, which is entitled to a fixed dividend of 6% per annum. The “A” class ordinary share will

(a)     Be included in the “per share” calculation after adjustment for the fixed dividend

(b)    Be included in the “per share” calculation for EPS without adjustment for the fixed dividend

(c)     Not be included in the “per share” calculation for EPS

(d)    Be included in the calculation of diluted EPS

(c)     Not be included in the “per share” calculation for EPS

IAS 33

      EPS is calculated before accounting for which of the following items?

(a)     Preference dividend for the period

(b)    Ordinary dividend

(c)     Taxation

(d)    Minority interest

(b)    Ordinary dividend

IAS 33

      Potential ordinary shares issued by a subsidiary should be included in the diluted EPS calculation as they could potentially have an impact on the net profit for the period and the number of shares to be included in the calculation

(a)     True

(b)    False

(a)     True

IAS 33

      An enterprise needs to disclose diluted EPS only if it differs from basic EPS by a material amount

(a)     True

(b)    False

(b)    False

IAS 33

      When an entity issues both consolidated and separate financial statements, the EPS information disclosed under IAS #33 is required

(a)     For both sets of financial statements

(b)    In neither set of statements

(c)     Only for the consolidated information

(d)    Only for the separate financial statements

(c)     Only for the consolidated information

IAS 33

      Dilution of EPS is defined in IAS #33 as

(a)     A decrease in earnings per share when any financial instrument is converted to any form of share capital

(b)    A decrease in share capital

(c)     A decrease in earnings per share when convertible instruments are converted to ordinary shares

(d)    A decrease in earnings per share when share capital is converted to debt capital

(c)     A decrease in earnings per share when convertible instruments are converted to ordinary shares

IAS 33

      Which figure for earnings does basic earnings per share use?

(a)     Profit attributable to ordinary equity holders and preference shareholders of the parent

(b)    Profit before taxation

(c)     Profit from operations

(d)    Profit attributable to ordinary equity holders of the parent

(d)    Profit attributable to ordinary equity holders of the parent

IAS 34

      Under IAS #34, interim financial reports should be published

(a)     Once a year at any time in that year

(b)    Within a month of the half-year-end

(c)     On a quarterly basis

(d)    Whenever the entity wishes

(d)    Whenever the entity wishes

IAS 34

      If an entity does not prepare interim financial reports, then

(a)     The year-end financial statements are deemed not to comply with IFRS

(b)    The year-end financial statements’ compliance with IFRS is not affected

(c)     The year-end financial statements will not be acceptable under local legislation

(d)    Interim financial reports should be included in the year-end financial statements

(b)    The year-end financial statements’ compliance with IFRS is not affected

IAS 34

      Interim financial reports should include as a minimum

(a)     A complete set of financial statements complying with IAS #1

(b)    A condensed set of financial statements and selected notes

(c)     A balance sheet and income statement only

(d)    A condensed balance sheet, income statement, and cash flow statement only

(b)    A condensed set of financial statements and selected notes

IAS 34

      IAS #34 states a presumption that anyone reading interim financial reports will

(a)     Understand all IFRS

(b)    Have access to the records of the entity

(c)     Have access to the most recent annual report

(d)    Not make decisions based on the report

(c)     Have access to the most recent annual report

IAS 34

      An entity prepares quarterly interim financial reports in accordance with IAS #34. The entity sells electrical goods, and normally 5% of customers claim on their warranty. The provision in the first quarter was calculated as 5% of sales to date, which was $10 million. However, in the second quarter, a design fault was found and warranty claims were expected to be 10% for the whole of the year. Sales in the second quarter were $15 million. What would be the provision charged in the second quarter’s interim financial statements?

(a)     $750,000

(b)    $1.25 million

(c)     $1.5 million

(d)    $2 million

(d)    $2 million

(10M x 5%) + (15M x 10%) = 2M