Acc 108 Practice Theory Questions 1. The presentation of current and non-current liabilities in the statement of financial position (batance sheet): (a)is shown only on GAAP financial statements. (b) is shown on both a GAAP and an IFRS statement of financial position. (clis atways shown with current liabilities reported first in anIFRS statement of Financial position. (d)indudes contingent liabilities under IFRS. 2.1m accounting for short-term debt expected to be refinanced to long-term debt: (2) GAAP uses the authorization date to determine classification of short-term debt to be refinanced. (0) IFRS uses the authorization date to determine classification of short-term debt to be refinanced. (C)IFRS uses the financial statement date to determine classification of short-term debt to be refinanced, {d) GAAP uses the date of issue, but only for secured debt, to determine classification of short-term debt to be refinanced 3. Under IFRS, a provision is the same as a contingent liability. (c) a contingent gain. an estimated liability. (d) None of the above. 4. Atypical provisions: (a) bonds payable. (¢) a warranty liability. (0) cash. (d) accounts payable, 5. In determining the amount of a provision, a company using IFRS should generally measure: (2) using the midpoint of the range between the lowest possible loss and the highest possible loss. {b) using the minimum amount of the loss in the range. ‘{e) using the best estimate of the amount of the loss expected to occur. (d) using the maximum amount of the loss in the range. 6. Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be: {a) expensed in the period when the debt is issued. recorded as a reduction in the carrying value of bonds payable (c) accumulated in a deferred charge account and amortized over the life of the bonds. {d) reported a3 an expense in the period the bonds mature or are redeemed. 7. Which of the following is stated correctly? (a) Current liabilities follow nen-current liabilities on the statement of financial pasition under GAAP but non-current liabilities follow current liabilities under IFRS, (0) 1FRS does not treat debt modifications as extinguishment of debt. {c} Bond issuance costs are recorded as a reduction of the carrying value of the debt under GAAP but are recorded as an asset and amortized to expense over the term of the debt under IFRS. (4) Under GAAP, bonds payable is recorded at the face amount and any premium oF discount is, recorded ina separate account. Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used. Scanned with CamScanner‘Ace 108 Practice Theory Questions 8. All of the following are differences between IFRS and GAAP in accounting for liabilities excep (a) When a bond is issued at a discount, GAAP records the discount in a separate contra liability ‘account. IFRS records the bond net of the discount. (b) Under IFRS, bond issuance costs reduce the cartying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond. (€) GAAP, but not IFRS, uses the term “troubled-debt restructurings.” [d) GAAP, but not IFRS, uses the term “provisions” for contingent liabilities which are accrued. ‘9. Which of the fotlowing is nota criterion for a lease to be recorded as a finance lease? (2) There is transter of ownership (0) The teases cancelabie. {c} The lease term is for the major part of the economic life of the asset. (4) There is a bargain- purchase option. 10, Under IFRS, in computing the present value of the minimum lease payments, the lessee should: (2) use its incremental borrowing rate in all cases. {b) use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, ‘assuming that the implicit rate is known to the lessee, {c) use either femental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee. (a) use the implicit rate of the lessor, unless it is impracticable to determine the implicit rate. 11. Alease that involves a manufacturer's or dealer's profit is afan): (2) direct financing lease. (c) operating lease. {b) finance lease. (d) sales-type lease. 12. Which of the following statements is true when comparing the accounting for leasing transactions under GAAP with IFRS? (2) IFRS for leases is more “rules-based” than GAAP and includes many bright-ine criteria to determine ownership. (D) IFRS requires that companies provide a year-by-year breakout of future non-cancelable lease payments due in years 1 through 5. (c) The IFRS leasing standard is the subject of over 30 interpretations since its issuance in 1982. IFRS does not provide detailed guidance for leases of natural resources, sale-leasebacks, and leveraged leases. 13, All of the following statements about lease accounting under IFRS and GAAP are true except: {a} IFRS requires a year-by-year breakout of payments related to leasing arrangements () IRS 1s more generalin ts lease accounting provisions than Is GAAP. {c) The 1FRS leasing standard, IAS 17, isthe subject of only three Interpretations. {d) Finance leases under IFRS are referred to as capital leases under GAAP. 14. Which of the following is false? (2) Under GAAP, deferred taxes are reported based on the classification of the asset or liability to which it relates (b) Under 1FRS, some potential liabilities are not recognized. (c) Under GAAP, the enacted tax rate is used to measure deferred tax assets and liabilities. (4) Under IFRS, al deferred tax assets and liabilities are classified as non-current. Scanned with CamScannerAcc 108 Practice Theory Questions. 15, Which of the following statements is correct with regard to IFRS and GAAP? (a) Under GAAP, all potential abilities related to uncertain tax positions must be recognized. 4{b) The tax effects related to certain items are reported in equity under GAAP; under IFRS, the tax ‘effects are charged or credited to income {C) IFRS uses an affirmative judgment approach for deferred tax assets, whereas GAAP uses an Impairment approach for deferred tax assets. 44) IFRS classifies deferred taxes based on the classification of the asset or liability to which it relates. 16. Under IFRS: {a) “probable” |s defined as a level of likelihood of at least slightly more than 60%, {b) a company should reduce a deferred tax asset when itis likely that some or all of it will not be realized by using a valuation allowance. (¢) a company considers only positive evidence when determining whether to recognize a deferred tax asset. {) deterred tax assets must be evaluated at the end of each accounting period 17. Which of the following isnot one of the essential characteristics for an item to be reported asa liability on the balance sheet? itis a present obligation of a particular entity it is payable to specifically identifiable payees it involves a future sacrifice of economic benefits it is reasonably measurable in terms of money ane 38, A retail store received cash and issued gift certificates that are redeemable in merchandise. “The gift certificates lapse two years after they are issued, How would the balance of deferred revenue be affected by each of the following transactions? Redemption of certificates Lapse of certificates Decrease No effect Decrease Decrease Noeffeet No effect No effect Decrease 19. Which of the following instruments would nat be classified as a financial liability? 3% —_Apreference share that will be redeemed by the issuer for cash on a future date (I.e., the entity has an outstanding share that it will repurchase at a future date}. b. A contract for the delivery of as many of the entity's ordinary shares as are equal in value to 100,000 on a future date (-e., the entity will issue a variable number af own shares in return for cash at a future date}. ‘A written call option that gives the holder the right to purchase a fixed number of the ‘entity's ordinary shares in return for a fixed price {i.., the entity would issue a fixed number of own. shares in return for cash, ifthe option is exercised by the holder, at a future date). 4. Anissued perpetual debt instrument (i.e., a debt instrument for which interest witl be paid for all eternity, but the principal will not be repaid). 20. Ashort-term, non-trade, note payable with no stated rate of interest issued in a transaction that contains a significant financing component should be a recorded at maturity value. b, recorded at the face amount. discounted to its present value. Feported separately ftom other short-term notes payable, Scanned with CamScannerAcc 108 Practice Theory Questions 21. On August 2, 20x1, an entity acquired a new machine that it does not have to pay for until September 1, 20%5. The total payment on September 1, 20xS will include both principal and interest. The initial measurement of the note and the machine is equal tothe 2. payment for the principal multiplied by PV of #1 b. payment for interest multiplied by PV of erdinary annuity of PL & aplusb a total payment on the note multiplied by PV of PL 22. Which of the following is the least relevant consideration when evaluating whether to derecognize a financial lability? 2 Whether the obligation has been discharged. b. ‘Whether the obligation has been canceled. © Whether the obligation has expired 4 Whether the obligation has a potential to cause inflows of economic benefits tothe issuer, 23. When bonds are redeemed by the issuer prior to their maturity date, any material gain or loss on the redemption, is 2. amortized over the period remaining to maturity and reported as an extraordinary item in {the income statement b. amortized over the period remaining to maturity and reported as part af income from continuing operations in the income statement. © reported in the income statement as an extraordinary item in the period of redemption. reported in the income statement as part of income from continuing operations in the Period of redemption. 2A. “Forecord an asset retirement bigation {ARO}, Le, prion ir decanting and restoration cost, the cost associated with the ARO is a. expensed. By included in the carying amount of the related long lived asset TE ingvenira arpa neon 4. none of these. 25. The board of directors of ABC Inc. decided on December 15, 20XX, to wind up international ‘operations in the Far East and move them to Australia. The decision was based on a detailed formal plan of restructuring as required by PAS 37. This decision was conveyed to all workers and management personnel at the headquarters in Europe. The cost of restructuring the operations in the Far East as per this detailed plan was ®2 million. How should ABC Inc. treat this restructuring in its financial statements for the year-end December 31, 20XX? Because ABC Inc, has not announced the restructuring to those affected by the decision and thus has not raised an expectation that ABC Inc. will actually carry out the restructuring {and as no constructive obligation has arisen], only disclose the restructuring decision and the cost of estructuring of P2 million in footnotes ta the financial statements. b. Recognize a provision for restructuring since the board of directors has approved it and it has been announced in the headquarters of ABC Inc. in Europe. « Mention the decision to restructure and the cost involved in the chairman's statement in the annual report since it a decision of the board of directors. d. Because the restructuring has not commenced before year-end, based on prudence, wait Until next year and do nothing in this year’s financial statements. Scanned with CamScannerAcc 108 Practice Theory Questions 26, Depending onthe expected settlement date, the Hablty for accumulating and vesting paid leaves already earned by employees are presented in the employer's statement of financial position 3 2 current ability. eaorb B.—noncurrent ability, 4. not presented 27. PAS.19 does not apply to which of the following? 2 —_ educational assistance given by an employer to the employee's children. b. —_anannual subsidy of one sack of rice given by an employer to the employee © —_anadditional atlowance given to the employee through a competitive bargaining agreement. & compensation in the form of shares of stocks 28 __ Entity B, a trustee, undertakes to manage the retirement benefit fund of Entity A for the benefit of Entity A’s employees. When reporting to Entity Aregarding the status and performance of ‘the fund, Entity 8 would most likely apply which of the following standards? PAS19 PAS 24 PAS 26 PFRS6 ‘Which of the following statements is correct? ‘Apension plan is contributory when the employer makes payments to a funding agency. ‘An employer reports no liability on its balance sheet in a defined-contribution plan. ‘Employers are at risk with defined-benefit plans because they must contribute enough to meet the cost of benefits that the plan defines The accounting for defined contribution plans is complex because actuarial assumptions are required to measure the obligation and the expense and there is a possibility of actuarial gains and losses 30. _Anentity has decided to improve its defined benefit pension scheme. The benefit payable will be determined by reference to 60 years’ service rather than 80 years’ service, As a result, the defined benefit pension liability will increase by 10 million. The average remaining service lives of the employees is 10 years. How should the increase in the pension liability by P10 million be treated. inthe financial statements? ‘The past service cost should be charged against retained profit. “The past service cost should be charged against profit or loss for the year. ‘The past service cost should be spread over the remaining working lives of the employees. ‘The past service cost should not be recognized. BL Customer enters into a five-year contract with Supplier ¥ for the use of a rolling stock ‘specifically designed for Customer X. The rolling stock is designed to transport materials used in Customer X's production process and is not suitable for use by other customers. The rolling stock is ot explicitly specified in the contract, but Supplier Y awns only one rolling stock that is suitable for Customer X's use. If the rolling stock does not operate properly, the contract requires Supplier ¥ to repair or replace the rolling stock. Supplier ¥ does not have a substantive substitution right. Is the rolling stock an identified asset? ‘Yes, because the rolling stack is implicitly specified in the contract. ‘Yes, because the contract extends beyond 12 months. No, because the rolling stock is not explicitly specified No, because | don’t know what a rolling stock is. the contract. an oe, Scanned with CamScanner‘Acc 108 Practice Theory Questions Security deposits, which are refundable to the lessee upon lease termination, are treated as prepaid rent by lessees and as unearned income by lessors. are never discounted. are treated as receivable by lessees and as payable by lessors. are discounted only by lessees but not by lessors Allessor’s gross investment in a finance lease is computed as lease payments plus unguaranteed residual value. present value of (a). difference between (a) and (b). sum of a) and (b) 34. Which of the following statements is false regarding the accounting for leases? a Thelessor may not use the straight line basis for recognizing lease income under an ‘operating lease if another systernatic basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished. b. The amount of lease income recognized each year under an operating lease is typically constant even though the contractual payments increase every year by a certain amount specified in the contract. . Itis possible that the lessor does not depreciate the leased asset even if the lease is classified as an operating lease. Under an operating lease, the lessor capitalizes intial direct costs. These costs will increase the lease income each year. Security deposits that are refundable are treated as unearned income by lessors under an operating lease. are not discounted because they are normally af a short-term nature are treated as recelvable by lessees and as payable by lessors. are discounted only by lessees but not by lessors 36. Which of the following ereates a permanent difference between financial income and taxable income? Interest received on government bonds b. Accrual method of recognizing revenue © ——_Unearned rent revenue d. Accelerated cost recovery on plant and equipment 37. Which of the following creates a temporary difference between financial and taxable income? a. Imtereston treasury debt secures BL Accelerated depreciation on plant and equipment 6 Fines from violation of law 4. Premiums paid fr officer's tife insurance (the companys the beneficiary] 38. Whichof the following is the most like ly item to result in a deferred tax asset? 2. Using accelerated depreciation for tax purposes but straight-line depreciation for accounting Purposes b. Using the completed-contract method of recognizing construction revenue tax purposes, but using percentage-of-completion method for financial reporting purposes & Prepaid expenses Unearned revenues. Scanned with CamScanner‘Acc 108 Practice Theory Questions. 39. The purpose of aninterperiod income tax allocation is to 2. allow reporting entities to fully utilize tax losses carried forward from a previous year. be allow reporting entities whose tax liabilities vary significantly from year to year to smooth ayments to taxing agencies. i recognize an asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. amortize the deferred tax lability shown on the balance sheet, Scanned with CamScanner