International Accounting Standards: Quiz!
- 1.
What are the two key criteria for an item of property, plant & equipment to be “recognized” as an asset?
- A.
When it can be reliably measured
- B.
When it is controlled by the entity
- C.
When it is probable that economic benefits will flow to the entity from the asset
- D.
When it has a residual value
Correct Answer(s)
A. When it can be reliably measured
C. When it is probable that economic benefits will flow to the entity from the assetExplanation
An item of property, plant & equipment can be recognized as an asset when it can be reliably measured, meaning its value can be accurately determined. Additionally, it must be probable that economic benefits will flow to the entity from the asset, indicating that the asset will generate future value or income for the organization. These two criteria ensure that the item meets the requirements to be classified as an asset on the organization's financial statements.Rate this question:
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- 2.
What does IAS 16 state about how we should depreciate an asset?
- A.
All assets having a known useful life should be depreciated
- B.
Assets should be recognised in the balance sheet at their carrying amount
- C.
Assets should be depreciated by systematically allocating their depreciable amount over their useful life
- D.
The carrying amount of an asset is the value recognised in the accounts after deducting depreciation and impairment losses
Correct Answer
C. Assets should be depreciated by systematically allocating their depreciable amount over their useful lifeExplanation
Some non-current assets are not depreciated.Rate this question:
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- 3.
How should an entity choose which depreciation method to use?
- A.
Always use 25% diminishing balance unless there is a good reason not to
- B.
The method which best reflects way we use up the value of the asset over its expected useful life
- C.
If the residual value is negligible you can ignore it when calculating the depreciable amount
- D.
Useful life and and residual value should be reviewed annually and any changes reported according to IAS 8
- E.
When determining useful life, expected usage and expected physical wear and tear must be considered
Correct Answer
B. The method which best reflects way we use up the value of the asset over its expected useful lifeExplanation
IAS8, Accounting Policies; Changes in Accounting Estimates; and ErrorsRate this question:
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- 4.
What are the 3 key elements used to decide whether an intangible fixed asset should be recognised in the accounts?
- A.
Control, marketability, materiality
- B.
Completion of development, control, identifiability
- C.
Control, identifiability, economic benefits
- D.
Intention to complete development, economic benefits, identifiability
Correct Answer
C. Control, identifiability, economic benefitsExplanation
Remember intangible non-current assets include capitalised development costsRate this question:
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- 5.
Research costs - What does IAS38, Intangible Assets, the state is the accounting treatment for research costs?
- A.
All research costs should be written off at the time they are incurred in line with the Prudence Concept.
- B.
Revenue costs are treated as expenses on the Income Statement whereas Capital costs are treated as Non-current Assets
Correct Answer
B. Revenue costs are treated as expenses on the Income Statement whereas Capital costs are treated as Non-current AssetsExplanation
IAS 38, Intangible Assets, states that research costs should be expensed as incurred. This means that all research costs should be treated as revenue costs and recorded as expenses on the Income Statement. On the other hand, capital costs are treated as non-current assets and are capitalized on the balance sheet. Therefore, the correct answer is that revenue costs are treated as expenses on the Income Statement, while capital costs are treated as non-current assets.Rate this question:
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- 6.
Which TWO of the following options show ALL 6 of the criteria an entity needs to demonstrate in order to recognize development expenditure as a capital cost?
- A.
Intention to complete, technically feasible, usefulness or marketability
- B.
Control, technically feasible, usefulness
- C.
Sufficient resources to enable completion, cost can be reliably measured, how economic benefits will be achieved
- D.
Identifiability, cost can be reliably measured, control
Correct Answer(s)
A. Intention to complete, technically feasible, usefulness or marketability
C. Sufficient resources to enable completion, cost can be reliably measured, how economic benefits will be achievedExplanation
In 1961 Rolls Royce changed accounting policy and capitalised its development costs so it could show a profit. (Matching Concept) It then had to borrow money to pay dividends out of the "profits". Rolls Royce was liquidated in 1971.Rate this question:
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- 7.
IAS 36 Impairment of fixed assets - The present value of future net cash inflows to the entity from a Cash Generating Unit is the definition of which value?
- A.
Value in use
- B.
Recoverable amount
- C.
Carrying amount
Correct Answer
A. Value in useExplanation
Value in use refers to the present value of future net cash inflows that an entity is expected to derive from a cash-generating unit (CGU) or a group of CGUs. It represents the higher of the fair value less costs of disposal and the value in use of an asset. Therefore, the correct answer is "Value in use" as it aligns with the definition provided in the question.Rate this question:
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- 8.
What does the following definition describe? “the higher of the fair value less costs to sell, and the value in use of an asset or cash-generating unit”
- A.
Carrying amount
- B.
Recoverable amount
- C.
Market value in an arm's length transaction
Correct Answer
B. Recoverable amountExplanation
This definition is describing the "recoverable amount" of an asset or cash-generating unit. The recoverable amount is the higher value between the fair value less costs to sell and the value in use of the asset or unit. It represents the amount that can be recovered from the asset or unit, either through its sale or through its continued use.Rate this question:
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- 9.
Why would we need to consider a Cash generating unit (a group of assets) rather than an individual non-current asset when determining recoverable amount?
- A.
It is not economically viable to work out the future cash inflows from an individual asset
- B.
Materiality
- C.
Because individual assets often don't create cash inflows on their own
Correct Answer
C. Because individual assets often don't create cash inflows on their ownExplanation
When determining the recoverable amount, it is necessary to consider a cash generating unit (CGU) rather than an individual non-current asset because individual assets often do not generate cash inflows on their own. The cash inflows are usually generated by a group of assets working together as a unit. By considering the CGU, we can assess the future cash inflows and determine the recoverable amount more accurately. Additionally, it is not economically viable to work out the future cash inflows from an individual asset, as it may not provide a complete picture of the overall cash-generating potential of the group of assets. Materiality is also a factor to consider, as individual assets may not have a significant impact on the overall financial position of the entity.Rate this question:
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- 10.
If the carrying amount (net book value) of an asset is below the recoverable amount, what is the name we give to the difference between the two values?
- A.
Revaluation loss
- B.
Impairment loss
- C.
Notional loss on sale
Correct Answer
B. Impairment lossExplanation
When the carrying amount of an asset is below its recoverable amount, it indicates that the asset is impaired, meaning its value has significantly decreased. The difference between the carrying amount and the recoverable amount is referred to as an impairment loss. This loss is recognized in the financial statements as an expense, reflecting the decrease in the asset's value.Rate this question:
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- 11.
What types of property are considered to be an investment property?
- A.
Land held for capital appreciation
- B.
Vacant land
- C.
Empty warehouse
- D.
Property to let
Correct Answer(s)
A. Land held for capital appreciation
B. Vacant land
D. Property to let -
- 12.
Which type of lease is normally long term and transfers all the risks and rewards of ownership?
- A.
Finance lease
- B.
Operating lease
Correct Answer
A. Finance leaseExplanation
A finance lease is a type of lease that is typically long term and transfers all the risks and rewards of ownership to the lessee. In a finance lease, the lessee is responsible for maintaining and insuring the leased asset, as well as bearing any costs associated with its use, such as repairs and maintenance. At the end of the lease term, the lessee usually has the option to purchase the asset at a predetermined price. This type of lease is commonly used for assets that have a long economic life and are expected to retain their value over time.Rate this question:
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- 13.
IAS17 allows us to capitalize an asset on a finance lease, this increases our Net Assets Which of the following criteria in our contract would indicate that we should NOT capitalize the leased asset?
- A.
Term of the lease is major part of the asset's useful life
- B.
At inception, PV of minimum lease payments is substantially all of the FV of the asset
- C.
Lessor is responsible for repairs
- D.
Ownership transferred at end of lease
- E.
Lessee has option to purchase at end of lease at price so much lower than Fair Value it is almost certain they will exercise the option
Correct Answer
C. Lessor is responsible for repairs -
- 14.
IAS 2 requires stock to be valued at “lower of cost and NRV” By recognizing that stock is worth less than what it cost the entity, we have recognized the loss in the accounts before it has occurred ie before we have sold the stock. This is in line with the _______ concept.
- A.
Matching
- B.
Business Entity
- C.
Reliability
- D.
Prudence
- E.
Historical Cost
Correct Answer
D. Prudence -
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Current Version
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Mar 22, 2023Quiz Edited by
ProProfs Editorial Team -
Feb 18, 2009Quiz Created by
Geronimo
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