Identify which of the following is an assumption(s) underlying the preparation and presentation of financial statements under the IASB Framework.
Accrual Basis Going Concern
- Yes No
- Yes Yes
- No Yes
- No No
There are two assumptions underlying the preparation and presentation of financial statements: accrual basis and going concern. IASB Framework, para 22-23.
When should an item that meets the definition of an element be recognized?
- The item has a cost or value that can be measured reliably.
- It is highly unlikely that any future economic benefit associated with the item will flow to the entity.
- Both A and B.
- Neither A nor B.
1. Recognition is the process of incorporating an item in the financial statements when it meets the definition of the element and satisfies the criteria for recognition. That criteria states that there is the probability of future economic benefit associated with the item that will flow to or from the entity and that the item has a cost or value that can be measured with reliability. IASB Framework, para. 82-83.
According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants, is
2. This answer is correct because the IASB Framework has five elements: asset, liability, equity, income, and expense. The definition given is that of income. Note that income includes both revenues and gains.
Which of the following statements, if any, concerning IFRS for SMEs is/are correct?
I. IFRS for SMEs is based on accrual basis accounting.
II. Generally, IFRS for SMEs may be used as an alternative to using OCBOA.
- I only.
- II only.
- Both I and II.
- Neither I nor II.
3. Both statements are correct. IFRS for SMEs is based on accrual basis accounting (Statement I) and, generally, IFRS for SMEs may be used as an alternative to using OCBOA (Statement II).
Under IFRS for SMEs, which of the following methods, if any, can be used by an investor to account for an investment in another entity (an associate) over which the investor has significant influence?
Cost Method Equity Method
- Yes Yes
- Yes No
- No Yes
- No No
1. Under IFRS for SMEs, either the cost method or equity method may be used by an investor to account for an investment in another entity (called an "associate" in IFRS for SMEs) over which the investor has significant influence. Under U.S. GAAP, only the equity method may be used.
Under IFRS, which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies?
- Consider the most recent pronouncements of other standard-setting bodies to the extent they do not conflict with the IFRS or the IASB Framework.
- Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition.
- Consider the applicability of the definitions, recognition criteria, and measurement concepts in the IASB Framework.
- Apply the requirements in IFRS dealing with similar and related issues.
2. The highest level in the hierarchy is an IFRS standard applicable to the transaction.
Kelly Corp. barters with Ace Corporation for goods that are similar in nature and value. The value of the goods was $1,000. The cost of the goods was $400. If Kelly uses IFRS to prepare financial statements, what amount should Kelly recognize as income?
2. This answer is correct because if a barter transaction is for goods that are similar in nature and value, then no income or expense is recognized.
For IFRS purposes, cash advances and loans from bank overdrafts should be reported on the statement of cash flows as
- Operating activities.
- Investing activities.
- Financing activities.
- Other significant noncash activities.
1. The IFRS requires cash advances and loans from bank overdrafts to be classified as operating activities
Largo Corporation prepares its financial statements in accordance with IFRS. Which of the following items is required disclosure on the income statement?
- Revenues, cost of goods sold, and advertising expense.
- Finance costs, tax expense, and income.
- Operating expenses, nonoperating expenses, and extraordinary items.
- Gross profit, operating profits, and net profits.
2. The income statement may be prepared by presenting expenses either by nature or by function. The minimum required disclosures on the income statement include income, finance costs, share of profits and losses using the equity method, tax expense, discontinued operations, profit or loss, noncontrolling interests in profits and losses, and the net profit (loss) attributable to equity holders of the parent.
Larimer Corporation prepares its financial statements in accordance with IFRS. Larimer acquired equipment by issuing 5,000 shares of its common stock. How should this transaction be reported on the statement of cash flows?
- As an outflow of cash from investing activities and inflow of cash from financing activities.
- As an inflow of cash from financing activities and an outflow of cash from operating activities.
- At the bottom of the statement of cash flows as a significant noncash transaction.
- In the notes to the financial statements as a significant noncash transaction.
4. This transaction did not involve an exchange of cash; therefore, it is not included on the statement of cash flows. IFRS requires that significant noncash transactions be reported in the notes to the financial statements. (Note that for U.S. GAAP, if there are only a few significant noncash transactions, they may be reported at the bottom of the statement of cash flows, or they may be reported in a separate schedule in the notes to the financial statements.)
According to the IASB Framework, the two criteria required for incorporating items into the income statement or statement of financial position are that
- It meets the definition of relevance and reliability.
- It satisfies the criteria of capital maintenance.
- It meets the definition of an element and can be measured reliably.
- It meets the requirements of comparability and consistency.
3. In order for an item to be recognized in the financial statements, IFRS requires that it meet the definition of an element and can be measured reliably.
Glenda Corporation prepares its financial statements in accordance with IFRS. Glenda must report finance costs on the statement of cash flows
- In operating activities.
- Either in operating activities or financing activities.
- In financing activities.
- In investing activities or financing activities.
2. Under IFRS finance costs (interest expense) may be reported in either the operating or financing section of the statement of cash flows. However, once it is disclosed in a particular section, it must be reported on a consistent basis. Therefore, this answer is correct.