Chapter 04 – IFRS Part I

Multiple Choice Questions

1.
In an Ernst and Young 2005 survey of 130 companies’ Forms 20-F filed
with the SEC, what issue required the greatest adjustment?
a) goodwill
b) leases
c) pensions
d) business combinations
2.
The following inventory information above was taken from the records
of GlobeKom Ltd.:

Under U.S. GAAP, what should the Balance Sheet report for Inventory?
a) $9,000
b) $8,500
c) $9,500
d) $10,000
3.
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.
4.
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.
5.
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.
6.
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
b) development
c) neither research nor development
d) It could be either research or development, depending on
management's wishes.
7.
The following information was taken from the fixed asset records of
Bosco Ltd as of December 31, 2010:

Using IAS 36, what is the recoverable amount?

a) €85,000
b) €82,000
c) €63,000
d) €75,000
8.
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
9.
What do IASB standards say about related party transactions?
a) They are illegal in most countries and must be avoided.
b) Related party transactions should be eliminated from the financial
statements.
c) They must be disclosed in the notes to the financial statements.
d) none of the above
10.
According to IFRS 8 (Segment Reporting), which is not one of the three
criteria for defining an operating segment?
a) An operating segment can’t merely be a lessor.
b) An operating segment is a component of a business that generates
revenues.
c) An operating segment is a component of a business whose
operating results are regularly reviewed by the chief operating
officer.
d) An operating segment has separate financial information available.