International Accounting, 5e (Doupnik.

CHAPTER 4 INTERNATIONAL FINANCIAL REPORTING STANDARDS: PART I

1. 6. 11. 16. 21. 26. 31. 36. 41. 46.

2. 7. 12. 17. 22. 27. 32. 37. 42. 47.
3. 8. 13. 18. 23. 28. 33. 38. 43. 48.
4. 9. 14. 19. 24. 29. 34. 39. 44. 49.
5. 10. 15. 20. 25. 30. 35. 40. 45. 50.

1. What types of differences can cause issues between International Financial Reporting
Standards and U.S. GAAP?
A. Measurement
B. Alternatives available
C. Disclosure
D. All of the above may be different between IFRS and U.S. GAAP.

2. Which of the following is generally true about the differences between U.S. GAAP and IFRS?
A. U.S. GAAP is more flexible than IFRS.
B. U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based.
C. More professional judgment is required to apply U.S. GAAP than is required for
implementing IFRS.
D. In all cases, U.S. GAAP is more detailed than the IFRS.

3. Which of the following inventory valuation methods, commonly used under the U.S.
GAAP, is NOT allowed under IAS 2 (Inventories)?
A. LIFO
B. FIFO
C. Weighted average
D. Retail inventory method

4. The following inventory information was taken from the records of GlobeKom Ltd.:

Historical cost $12,000

Replacement cost $9,000
Expected selling Price $10,000
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Expected selling cost $500
Normal profit margin 10% of selling price

Under IAS 2, what should the balance sheet report for Inventory?
A. $9,000
B. $8,500
C. $9,500
D. $10,000

5. The following inventory information was taken from the records of GlobeKom Ltd.:

Historical cost $12,000

Replacement cost $9,000
Expected selling Price $10,000
Expected selling cost $500
Normal profit margin 10% of selling price

Under U.S. GAAP, what should the balance sheet report for Inventory?
A. $9,000
B. $8,500
C. $9,500
D. $10,000

6. The following inventory information was taken from the records of Kleinfeld Inc.:

Historical cost $12,000

Replacement cost $7,000
Expected selling Price $9,000
Expected selling cost $500
Normal profit margin 50% of price

Under IAS 2, what should the balance sheet report for Inventory?
A. $7,000
B. $8,500
C. $7,600
D. $9,000

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7. The following inventory information was taken from the records of Kleinfeld Inc.:

Historical cost $12,000

Replacement cost $7,000
Expected selling Price $9,000
Expected selling cost $500
Normal profit margin 50% of price

Assume that subsequent to your adjustment the expected selling price increases to $13,000 (all the
rest of the facts are the same).
What adjustment to inventory should be made under IAS 2 after this event?
A. Inventory should be increased (debited. by $3,500.
B. Inventory should be increased (debited. by $4,000.
C. No adjustment should be made to inventory once it is written down.
D. Inventory should be increased (debited. by $1,000.

8. The following inventory information was taken from the records of Kleinfeld Inc.:

Historical cost $12,000

Replacement cost $7,000
Expected selling Price $9,000
Expected selling cost $500
Normal profit margin 50% of price

Under U.S. GAAP, what should the balance sheet report for Inventory?
A. $9,000
B. $8,500
C. $7,000
D. $10,000

9. The following inventory information was taken from the records of a foreign corporation
whose stock is listed on an exchange in the U.S.

Historical cost $15,000

Replacement cost $11,000
Expected selling Price $13,500
Expected selling cost $800
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Normal profit margin $2,500

The following inventory information was taken from the records of a foreign corporation whose
stock is listed on an exchange in the U.S.
How will income under the U.S. GAAP compare to income the company reported under IFRS after
reconciliation?
A. Income will not be affected by the reconciliation.
B. Income under U.S. GAAP will be lower by $1,700.
C. Income under U.S. GAAP will be lower by $2,500.
D. Income under U.S. GAAP will be equal to income under IFRS.

10. 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.

11. What should be the basis for choosing depreciation methods for fixed assets under IAS
16 (Property, Plant, and Equipment) ?
A. Tax minimization
B. Profit maximization
C. Useful life of the fixed asset
D. Pattern of economic benefits to be derived from the asset

12. According to IAS 16 (Property, Plant and Equipment., what is the term used to indicate
the amount for which an asset could be exchanged between knowledgeable, willing parties
in an arm’s length transaction?
A. Replacement cost
B. Net realizable value
C. Fair value
D. Historical cost

13. Which of the following items should be included in the cost of property, plant, and
equipment under IAS 16?
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 A. All costs directly attributable to getting the asset to the proper location
B. Import duties and taxes
C. Estimated costs of removing the asset
D. All of these should be considered part of the cost of the asset.

14. In what way does IAS 16 (Property, Plant, and Equipment. differ from U.S. GAAP
concerning fixed asset measurement subsequent to initial recognition?
A. IAS 16 allows for upward revaluation of the asset based on fair value.
B. IAS 16 does not allow accumulated depreciation to be shown on the balance sheet.
C. IAS 16 requires that fixed assets be carried at fair value less accumulated impairment
losses.
D. IAS 16 allows both upward and downward revaluation of fixed assets, whereas U.S.
GAAP only allows upward revaluation.

15. 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.

16. Chien Bleu Ltd. purchased a building in 2009 for €10,000,000 and as of December 31,
2015 had, recorded accumulated depreciation on the building of €3,000,000. On December
31, 2015, the company conducted its first revaluation when the fair value was €12,000,000.
According to IAS 16, what account should be credited for €5,000,000?
A. Loss on Revaluation—Building
B. Gain From Revaluation of Building
C. Revaluation Surplus—Building
D. Revaluation Revenue—Building

17. According to IAS 16, a decrease in the carrying amount of a fixed asset that is identified
on an asset's first revaluation should be recorded as:
A. an expense on the income statement.
B. a prior period adjustment to retained earnings.
C. a credit to Revaluation Surplus.
D. a debit to Revaluation Surplus.
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18. Blanco Chemical Company spent €15,000,000 in development efforts to create a fertilizer
for which it was able to obtain a patent; however, the expected distribution costs make it
infeasible to market the chemical in the foreseeable future. According to IAS 38 (Intangible
Assets., how should Blanco Chemical Company record the €15,000,000?
A. As a "Deferred Development Cost" on the Balance Sheet
B. As "Fertilizer Revenue" on the Income Statement
C. As "Development Expense" on the Income Statement
D. It should only be reported in the notes to the financial statements.

19. As defined by IAS 38, how are intangible assets unlike other assets?
A. They must have arisen from past events.
B. Their value cannot be reasonably measured.
C. They must be controlled by enterprises.
D. They are nonmonetary and lack physical substance.

20. 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.

21. When a patent or trademark is acquired in a business combination, what does IAS 38 say
about recording these intangibles?
A. If they had not been previously recorded as separate assets by the acquired company,
they should always be recorded as "Goodwill" on the balance sheet of the company
acquiring them.
B. The cost of the intangibles should be expensed by the acquiring company on the merger date.
C. They should be recorded as separate intangible assets only if their useful life is indefinite
D. They should be recorded as separate intangible assets if their fair value can be reliably measured.

22. Through 50 years of high quality service, Domo Diagnostics Laboratory has created
goodwill with its clients that management estimates is worth at least $20,000,000. Under IAS
38, how should this be recognized?
A. An intangible asset "Goodwill" should be debited for $20,000,000.
B. The $20,000,000 should be expensed over a period of 20 years.
C. The $20,000,000 should be expensed over a period of 50 years.
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 D. It should not be recognized in Domo's accounting records at all.

23. Under IAS 38, which of the following items is specifically EXCLUDED from being
recognized as an internally generated intangible asset?
A. Computer software costs
B. Copyrights
C. Customer lists
D. Motion picture films

24. How does IAS 38 (Intangible Assets. differ from U.S. GAAP with respect to development
costs?
A. U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows
capitalization of these costs.
B. U.S. GAAP requires capitalization of development costs, whereas IAS 38 makes
capitalization of these costs optional.
C. U.S. GAAP treats development costs as part of "Goodwill", whereas IAS 38 treats these
costs as an intangible asset.
D. U.S. GAAP requires expensing of all development costs, and IAS 38 requires
capitalizing all development costs.

25. 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 costs
B. Development costs
C. Neither research nor development
D. It could be either research or development, depending on management's wishes.

26. Rive Rouge Confections Company incurred €5,000,000 to determine if chocolate could
be made to resist melting by adding certain inert minerals to the mixture. According to IAS
38, how should Rive Rouge record this cost?
A. It should be capitalized as a deferred development cost.
B. It should be treated as a cost of products it currently markets.
C. It should be expensed currently.
D. It should be amortized over 20 years.

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27. How does the definition of asset impairment differ between IAS 36 and U.S. GAAP?
A. U.S. GAAP does not consider selling price in determining impairment, but IAS 36 does.
B. U.S. GAAP considers cash flows in assessing value of continued use, but does not
discount them, whereas IAS 36 requires discounting in assessing asset impairment.
C. Asset impairment is more likely to occur under IAS 36 than under U.S. GAAP.
D. All of the above are differences between IAS 36 and U.S. GAAP.

28. The following information was taken from the fixed asset records of Bosco Ltd. as of
December 31, 2010:

Carrying value €100,000

Selling price €85,000
Costs of disposal €3,000
Expected future cash flows €75,000
Present value of expected future cash flows €63,000

Using IAS 36, what is the amount of impairment loss?

A. €18,000
B. €37,000
C. €15,000
D. €25,000

29. The following information was taken from the fixed asset records of Bosco Ltd. as of December
31, 2010:

Carrying value €100,000

Selling price €85,000
Costs of disposal €3,000
Expected future cash flows €75,000
Present value of expected future cash flows €63,000

What is the amount of impairment loss under U.S. GAAP?

A. €37,000
B. €18,000
C. €15,000
D. €25,000

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30. The following information was taken from the fixed asset records of Bosco Ltd. as of
December 31, 2010:

Carrying value €100,000

Selling price €85,000
Costs of disposal €3,000
Expected future cash flows €75,000
Present value of expected future cash flows €63,000

Using IAS 36, what is the recoverable amount?

A. €85,000
B. €82,000
C. €63,000
D. €75,000

31. Under U.S. GAAP, if the carrying value of a fixed asset was $50,000, the undiscounted
expected future cash flows was $55,000, the discounted expected future cash flows was
$51,000, and the selling price was $53,000, what is the amount of impairment loss?
A. $5,000
B. $3,000
C. $1,000
D. $0

32. A "bottom-up" test and "top-down" test must be applied under IASB standards to
determine:
A. impairment of tangible fixed assets.
B. impairment of patents.
C. impairment of goodwill.
D. allocation of overhead costs.

33. How should the cost of borrowing funds to acquire or construct property, plant, and
equipment be accounted for under IASB rules, as revised in 2007?
A. It should be expensed in the period incurred.
B. It should be added to the other costs of acquiring fixed assets to determine the amount
for the balance sheet.
C. Both methods are acceptable.
D. Neither method is acceptable under IASB rules.
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34. Under U.S. GAAP, interest on loans secured to acquire fixed assets must be:
A. expensed in the period they are incurred.
B. capitalized as part of the fixed asset cost.
C. either expensed currently or capitalized as part of the fixed asset cost.
D. charged against revenue in the year the asset is put into service.

35. 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

36. Under IAS 40 (Investment Property), gains or losses from revaluation are:
A. recognized in revaluation surplus.
B. recognized in current income.
C. not permitted.
D. recognized either in current income or revaluation surplus at the option of management.

37. Under IAS 16 (Property, Plant, and Equipment), subsequent revaluation decreases are:
A. never recognized.
B. credited to a revaluation surplus account.
C. recognized as an expense on the income statement.
D. first recognized as a reduction in any related revaluation surplus.

38. How does the treatment of borrowing costs under U.S. GAAP differ from IFRS?
A. U.S. GAAP has no guidance for accounting treatment related to borrowing costs.
B. U.S. GAAP specifically includes foreign exchange gains and losses on foreign currency
borrowings.
C. The definition of borrowing costs under U.S. GAAP is broader in scope than the
definition of interest cost under IAS 23.
D. U.S. GAAP does not allow netting of interest income against interest cost.

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39. Under IAS 38, which of the following items might qualify for capitalization as internally
generated intangible assets?
A. Brands
B. Publishing titles
C. Market share
D. Customer lists

40. Synergy Ltd. purchased a building in 2008 for €20,000,000 and as of December 31, 2014
had recorded accumulated depreciation on the building of €6,000,000. On December 31,
2014, the company conducted its first revaluation when the fair value was €24,000,000.
Under IAS 16, the journal entry recorded on this date would include:
A. a credit to Revaluation Surplus—Building for €10,000,000.
B. a debit to Revaluation Surplus—Building for €14,000,000.
C. a debit to Loss on Revaluation—Building for €14,000,000.
D. a credit to Loss on Revaluation—Building for €10,000,000.

41. Memphis Ltd. purchased a building in 2015 for €11,000,000 and as of December 31, 2018
had recorded accumulated depreciation on the building of €4,000,000. On December 31,
2018, the company conducted its first revaluation when the fair value was €27,000,000.
Under IAS 16, the journal entry recorded on this date would include:
A. a credit to Revaluation Surplus—Building for €20,000,000.
B. a debit to Revaluation Surplus—Building for €14,000,000.
C. a debit to Loss on Revaluation—Building for €14,000,000.
D. a credit to Loss on Revaluation—Building for €20,000,000.

42. How do IFRS and U.S. GAAP differ in their approach to allowing reversals of inventory
write-downs?
A. If they had not been previously recorded as separate assets by the acquired company, they should
always be recorded as "Goodwill" on the balance sheet of the company acquiring them.
B. The cost of the intangibles should be expensed by the acquiring company on the merger date.
C. They should be recorded as separate intangible assets only if their useful life is indefinite.
D. IFRS requires the reversal of write-downs from cost to net realization value (NRV. when
the selling price increases. U.S. GAAP prohibits the reversal of past write-downs.

43. What is effective control?

A. Assets bought and paid for with Cash.
B. Assets bought and paid for with Account Receivables.
C. Controlling a majority of voting shares of the subsidiary's stock.
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 D. Effective control is control over a subsidiary exercised through means other than
controlling a majority of voting shares of the subsidiary's stock.

44. How is control determined when a parent company does not own a majority of the voting
stock of a subsidiary?
A. Controlling the subsidiary's investing activities.
B. Controlling the subsidiary's operating activities.
C. Controlling the subsidiary's financing activities.
D. Criteria that establish effective control include control of the subsidiary's senior
management or board of directors, the control of the subsidiary's operating,
investing, or financing activities, and the right to obtain control by buying more
shares after a triggering event.

45. Which intangible assets are subject to annual impairment testing?

A. Definite-lived intangible assets.
B. Definite-lived tangible assets.
C. Indefinite-lived intangible assets.
D. Indefinite-lived intangibles and goodwill are subject to impairment testing at least
annually.

46. What are the three major types of intangible assets?

A. Externally generated.
B. Exchanged.
C. Internally generated.
D. The three types of intangible assets are: (1) purchased, (2) acquired in a business
combination, and (3) internally generated.

47. How does accounting for bearer plants differ from that for other biological assets?
A. Companies always revalue bearer plants, as they are required to do for all other
biological assets.
B. Companies never revalue bearer plants, because of their nature.
C. Companies treat bearer plants as goodwill.
D. Companies treat bearer plants as PPE. Thus, they choose between the cost and
revaluation models for these assets. The treatment of bearer plants constitutes an
important exception to the requirement that companies revalue biological assets.

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