An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures of the entity. This transaction should be treated in the cash flow statement as follows:
An entity operates a defined benefit pension plan and changes it on January 1, 20X4, to a defined contribution plan.The defined benefit plan still relates to past service but not to future service.The net pension liability after the plan amendment is USD 70 million, and the net pension liability before the amendment was $100 million.How should the entity account for this change?
Where there is a lease of land and buildings and the title to the land is not transferred, generally the lease is treated as if:
An entity 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 $10 million be treated in the financial statements?
When a public shareholding company changes an accounting policy voluntarily, it has to:
Which of the following is not a condition for hedge accounting?
Which of the following is not a qualitative characteristic of financial statements according to the Framework?
Company XYZ Inc. manufacturers and sells standard machinery. One of the conditions in the sale contract is that installation of machinery will be undertaken by XYZ Inc. During December 2005, XYZ received a special onetime contract from ABC Ltd. to manufacture, install, and maintain customized machinery. It is the first time XYZ Inc. will be producing this kind of machinery, and it is expecting numerous changes that would need to be made to the machine after the installation is completed, which one period is described in the contract of sale as the “maintenance period.” The total cost of making the changes during the maintenance period cannot be reasonably estimated at the time of the installation. When should the revenue from sale of this special machine be recognized?
An entity is in the entertainment industry and organizes outdoor concerts in four different areas of the world: Europe, North America, Australasia, and Japan. The entity reports to the board of directors on the basis of each of the four regions. The management accounts show the profitability for each of the four regions, with allocations for that expenditure which is difficult to directly charge to a region. The concerts are of two types: popular music and classical music. What is the appropriate basis for segment reporting in this entity?
An entity has a subsidiary that operates in a country where the exchange rate fluctuates wildly and there are seasonal variations in the income and expenditure patterns. Which of the following rates of exchange would probably be used to translate the foreign subsidiary’s income statement?
An entity has revalued its property and has recognized the increase in the revaluation reserve in its financial statements. The carrying value of the property was USD 8 million. The revalued amount was USD 10 million.Tax base of the property was $6 million. In the country, the tax rate applicable to profits is 35% and the tax rate applicable to profits made on the sale of property is 30%. Where will the tax liability be recognized and at what amount?
In the case of a non-monetary grant, which of the following accounting treatments is prescribed by IAS 20?
Contract prices are not necessarily relevant in determining fair value, and the fair value of a biological asset or agricultural produce is not adjusted be- cause of the existence of a contract.
Mediocre Inc. has entered into a very profitable fixed price contract for constructing a high-rise building over a period of three years. It incurs the following costs relating to the contract during the first year:
The percentage of completion of this contract at the year-end is:
The Standard does not require the equity method to be applied when the associate has been acquired and held with a view to its disposal within a certain time period. What is the period within which the associate must be disposed of?
What accounting method should be used for an investment in an associate where it is operating under severe long-term restrictions—for example where the government of a company has temporary control over the associate?
Lessors should show assets that are out on operating leases and income therefrom as follows:
An entity issues fully paid shares to 200 employees on December 31, 20X4. Normally shares issued to employees vest over a two-year period, but these shares have been given as a bonus to the employees because of their exceptional performance during the year.The shares have a market value of $500,000 on December 31, 20X4.An average fair value for the year of USD 600,000. What amount would be expensed in the income statement for the above share-based payment transaction?
How should gain on sale of an office building owned by the entity be presented in a cash flow statement?
What is the accounting for treasury share transactions?
“Bill and hold” sales, in which delivery is delayed at the buyer’s request but the buyer assumes title and accepts invoicing, should be recognized when:
Revenue from an artistic performance is recognized once:
An entity (other than a financial institution) receives dividends from its investment in shares. How should it disclose the dividends received in the cash flow statement prepared under IAS 7?
M Ltd, a new company manufacturing and selling consumable products, has come out with an offer to refund the cost of purchase within one month of sale if the customer is not satisfied with the product. When should M Ltd. recognize the revenue?
An entity started trading in country A, whose currency was the dollar. After several years the entity expanded and exported its product to country B, whose currency was the euro, and conducted business through a branch. The functional currency of the group was deemed to be the dollar but by the end of 20X7, 80% of the business was conducted in country B using the euro. At the end of 20X6, 30% of the business was conducted in the euro. The functional currency should
The profit on a finance lease transaction for lessors who are manufacturers or dealers should:
An entity has split its business segments on the basis of the law governing its different types of business. Two business segments that the entity has identified are insurance and banking. Within the banking group, several different services are provided: retail banking, merchant banking, and small business advisory service. The insurance entities sell travel insurance, health insurance, and property insurance. The entity operates throughout the world in several countries and continents. What basis should the entity re- port its segmental information?
An entity has a subsidiary that operates in a foreign country. The subsidiary sold goods to the parent for €2.1 million. The functional currency of the entity is the dollar.The cost of the goods to the subsidiary was €1.2 million.The goods were recorded by the entity at $1.05 million (€2 = 1 USD) and were all unsold at the year-end of December 31, 20X6.The exchange rate at that date was €1.5 = 1 USD.What is the value of the intragroup profit that will be eliminated on December 31, 20X6?
How should an unrealized gain on foreign currency translation be presented in a cash flow statement?
IAS 24 requires disclosure of compensation of key management personnel. Which of the following would not be considered “compensation” for this purpose?
X Ltd., a large manufacturer of cosmetics, sells merchandise to Y Ltd., a retailer, which in turn sells the goods to the public at large through its chain of retail outlets. Y Ltd. purchases merchandise from X Ltd. under a consignment contract. When should revenue from the sale of merchandise to Y Ltd. be recognized by X Ltd.?
Which of the following is not specifically excluded from the purview of IAS 20?
A chemical entity has no overseas sales. The entity produces different products from the process. The entity sells its product to small businesses, to larger national businesses, and to multinational entities. The management of the entity proposed to dis- close just one business segment. Can the entity dis- close just one business segment because it sells all of its products nationally?
An entity started trading in country A, whose currency was the dollar. After several years the entity expanded and exported its product to country B, whose currency was the euro. The business was conducted through a subsidiary in country B. The subsidiary is essentially an extension of the entity’s own business, and the directors of the two entities are common. The functional currency of the subsidiary is:
Which of the following is not a related party as envisaged by IAS 24?
Which of these disclosures is not required by IAS 20?
When an independent valuation expert advises an entity that the salvage value of its plant and machinery had drastically changed and thus the change is material, the entity should:
Capitalization of borrowing costs:
ABC Ltd. decided to operate a new amusement park that will cost one million dollars to build in the year 2005.Its financial year-end is December 31, 2005. ABC Ltd. has applied for a letter of guarantee for $700,000.The letter of guarantee was issued on March 31, 2006.The audited financial statements have been authorized to be issued on April 18, 2006.The adjustment required to be made to the financial statement for the year ended December 31, 2005, should be:
A construction company is in the middle of a two-year construction contract when it receives a letter from the customer extending the contract by a year and requiring the construction company to in- crease its output in proportion of the number of years of the new contract to the previous contract period. This is allowed in recognizing additional revenue according to IAS 11 if:
Which of the following reports is not a component of the financial statements according to IAS 1?
When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an entity should:
The current liabilities of an entity include fines and penalties for environmental damage. The fines and penalties are stated at $10 million. The fines and penalties are not deductible for tax purposes. What is the tax base of the fines and penalties?
A group is organized into a number of business divisions across the world. The group has two main classes of business: insurance and banking. The Management Board receives information from each business division on a quarterly basis and wishes to report segmental information on the basis of these divisions. What should be the basis of the group’s reporting of the primary segmental information?
Which of these elements are taken into account when determining the discount rate to be used?
A subsidiary has sold goods costing USD 1.2 million to its parent for USD 1.4 million.All of the inventory is held by the parent at year-end. The subsidiary is 80% owned, and the parent and subsidiary operate in different tax jurisdictions.The parent pays taxation at 30%, and the subsidiary pays taxation at 30%.Calculate any deferred tax asset that arises on the sale of the inventory from the subsidiary entity to the parent.
Which of the following situations would prima facie lead to a lease being classified as an operating lease?
An entity issued a convertible bond on January 1, 20X4 that matures in five years. The bond can be converted into ordinary shares at any time.The entity has calculated that the liability and equity components of the bond are three million dollars for the liability component and one million dollars for the equity component, giving a total amount of the bond of four million dollars.The interest rate on the bond is 6%, and local tax legislation allows a tax deduction for the interest paid in cash. Calculate the deferred tax liability arising on the bond as at the year ending December 31, 20X4. The local tax rate is 30%.
XYZ Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry and thus has significant other property, plant, and equipment that it carries in its books. It decided to revalue its property, plant, and equipment. The company’s accountant has suggested the alternatives that follow. Which one of the options should XYZ Inc. select in order to be in line with the provisions of IAS 16?
An entity is engaged in the manufacturing industry and has recently purchased an 80% holding in a small financial services group. This group does not meet any of the threshold criteria for a reportable segment. Can the entity disclose the financial services group as a separate business segment?
What type of information does IAS 30 require to be disclosed about concentrations of assets and liabilities?
XYZ Inc. changes its method of valuation of inventories from weighted-average method to first-in, first-out (FIFO) method. XYZ Inc. should account for this change as:
Which of the following may not be considered a “qualifying asset” under IAS 23?
An entity has a subsidiary that operates in a foreign country.
An entity installed a new production facility and incurred a number of expenses at the point of installation. The entity’s accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. These should be:
IAS 26 deals with:
A has acquired an investment in a subsidiary, B, with the view to dispose of this investment within six months. The investment in the subsidiary has been classified as held for sale and is to be accounted for in accordance with IFRS 5. The subsidiary has never been consolidated. How should the investment in the subsidiary be treated in the financial statements?
Purchase accounting requires an acquirer and an acquiree to be identified for every business combination. Where a new entity (H) is created to acquire two preexisting entities, S and A, which of these entities will be designated as the acquirer?
Potential ordinary shares issued by a subsidiary should be included in the diluted EPS calculation as they could potentially have an impact on the net profit for the period and the number of shares to be included in the calculation.