Questions and Answers of International Accounting

The ‘IFRS for SMEs’ is compulsory for the consolidated financial statements of medium-sized entities based within the European Economic Area (EEA).A. True.B. False.
The meaning of ‘true and fair view’ is precisely defined in the European Union’s Directive.A. True.B. False.
The meaning of ‘fair presentation’ is precisely defined in IAS 1.A. True.B. False.
The degrees of flexibility and subjectivity that the wording of IAS 1 implies regarding the application of ‘fair’ presentation is less than the degree of flexibility and subjectivity the wording
Explain for whom international differences in financial reporting are a problem.Describe any ways you know about in which those who face such problems are dealing with them.
Several factors have been suggested as related to financial reporting differences, i.e. legal systems, providers of finance, taxation, the accountancy profession and accidents of history.a. Within
‘International accounting classification systems are, by their very nature, simplistic’.Discuss.
By reference to any of the countries in Figure 5.2 or 5.3 with which you are familiar, comment on the apparent validity of the groupings. Make notes of points for and against the particular positions
‘The true and fair view requirement is now established in all European Union countries and so the aim of financial reporting has been harmonized’. Discuss.
a. Outline the objectives and achievements of the EU in the area of financial reporting.b. Outline the objectives and achievements of the IASB and its predecessor in the area of financial
In which European countries have the standards of the IASB had the greatest influence?
Bearing in mind that Section 5.5.2 of this chapter was written in 2015, rewrite it in the context of the time when you read this book. 5.5.2 Influence of the IASB The importance of the IASB's work
Under IAS 1, an asset is current when it is expected to be realized within 12 months from the balance sheet date.A. True.B. False.
Under IAS 1, an asset can only be current when it is expected to be realized within 12 months from the balance sheet date.A. True.B. False.
1 and 2 are obligatory.A. True.B. False.A number of separate statements or sections have been suggested as important elements in a complete set of ‘annual financial statements’.These include the
5 and 6 are obligatory.A. True.B. False.A number of separate statements or sections have been suggested as important elements in a complete set of ‘annual financial statements’.These include the
7 is obligatory.A. True.B. False.A number of separate statements or sections have been suggested as important elements in a complete set of ‘annual financial statements’.These include the
Provision of either 4 or both 2 and 3 is obligatory.A. True.B. False.A number of separate statements or sections have been suggested as important elements in a complete set of ‘annual financial
A statement of changes in equity, omitted from the above list, is obligatory as a separate statement under IAS 1.A. True.B. False.A number of separate statements or sections have been suggested as
‘The disclosure requirements of International Financial Reporting Standards are broadly sufficient to meet the needs of financial statement users’. Discuss.
Discuss the advantages and disadvantages of horizontal and vertical balance sheet formats.
Discuss the advantages and disadvantages of each of the four income statement formats allowed by the EU Fourth Directive, namely horizontal and vertical and by function and by nature.
Is there a danger of having too much data in published financial statements?
Which disclosure formats are usually used in your own jurisdiction? Why is this so?
If you live in, or work in connection with, a member country of the EU, investigate the progress in that country toward replacing national regulation to be in line with the 2013 Directive.
What is the total of shareholders’ funds?A. £145m.B. £174m.C. £319m.D. £770m.E. £350m.Using the following balance sheet and income statement Balance sheet m Property 200 Trade payables Plant
What is the total of current assets?A. £220m.B. £250m.C. £290m.D. £270m.E. £570m.Using the following balance sheet and income statement Balance sheet m Property 200 Trade payables Plant and
What is the total of current liabilities?A. £67m.B. £451m.C. £146m.D. £132m.E. None of the above.Using the following balance sheet and income statement Balance sheet m Property 200 Trade payables
What is the current ratio?A. 0.2 B. 2.0 C. 1.7 D. 0.8 E. 1.2 Using the following balance sheet and income statement Balance sheet m Property 200 Trade payables Plant and equipment 300 Tax due Other
What is the quick (acid test) ratio?A. 0.9 B. 4.8 C. 0.8 D. 0.2 E. 1.7 Using the following balance sheet and income statement Balance sheet m Property 200 Trade payables Plant and equipment 300 Tax
What is the receivables holding period?A. 21.6 days.B. 8 times.C. 19.4 days.D. 4.7 times.E. 28.2 days.Using the following balance sheet and income statement Balance sheet m Property 200 Trade
What is the return on capital employed?A. 39.0%B. 44.9%C. 48.0%D. 17.8%E. 34.0%Using the following balance sheet and income statement Balance sheet m Property 200 Trade payables Plant and equipment
The gross profit margin is:A. The same thing as gross profit.B. The sales minus the cost of sales.C. The gross profit as a proportion of the sales.D. The difference between the sales and the gross
Operating profit is:A. The same as gross profit.B. The profit before interest and tax.C. The profit after interest but before tax.D. The same as earnings.
The most appropriate measure of profitability from the point of view of the shareholders is:A. Return on equity.B. Return on capital employed.C. Return on non-current assets.D. Profit on sales.
Which of the following ratios would you expect to be the lowest for any particular company?A. The cash ratio.B. The current ratio.C. The quick ratio.D. The ratio of total assets to current
For which sort of business might the ratio of receivables to sales be the lowest (and therefore the debtors collection period the shortest)?A. A market stall selling vegetables.B. An audit firm.C. An
The simplified financial statements of two companies, P and Q, are shown in Figure 7.8.Assuming that interest is charged on the long-term loan at 10 per cent per annum, calculate the following ratios
The summarized balance sheets of company R at the end of two consecutive financial years were as shown in Figure 7.9.Sales were €541,000 and €675,000 for the years ended 31 March 20X2 and 20X3,
Mosca and Vespa are two sole traders with the financial statements (in euros) for the year ending 31 December as set out in Figure 7.10.Using the information contained in the financial statements,
The following information has been extracted from the recently published statements of company D, as set out in Figure 7.11.Figure 7.11 Financial statements for company D as at 30 AprilThe ratios set
Which of the following costs related to a building is NOT usually treated as an expense but is added to the asset?A. Repairs.B. Redecoration.C. Fitting new safety equipment.D. Cleaning.
Under IFRS, an asset is something:A. Owned.B. Used.C. Owned and controlled.D. Controlled.
The reason that provisions for future repair expenses cannot generally be recognized under IFRS is because they are usually:A. Estimates.B. Owed to third parties.C. Not probable.D. Not present
Which of the following costs are usually recognized as assets under IFRS?A. Computer software projects.B. Research projects.C. Legal costs of setting up a business.D. Advertising.
Fair value is another name for net realizable value.A. True.B. False.
Fair value is another name for value in use.A. True.B. False.
Under IFRS, for non-financial companies, most non-current assets are measured at:A. Fair value.B. The lower of cost or fair value.C. Cost less depreciation and impairment.D. Net realizable value.
A retail store would normally recognize revenue when:A. An order is made.B. Cash is received.C. Cash is received or a customer promises to pay.D. The product is taken by (or delivered to) the
Under IAS 11, profit on contracts is:A. Always taken on a percentage-of-completion basis.B. Never taken on a percentage-of-completion basis.C. Sometimes taken on a percentage-of-completion basis.D.
An entity has won a construction contract for $5 million. Work began on 1 November 20X1 and was 20 per cent complete on 31 December 20X1, the entity’s balance sheet date. The entity is confident
Which of the following is unlikely to be useful in determining the stage of completion of a construction contract?A. Surveys of work performed.B. Progress payments received from customers.C. The
Explain, in a way that is understandable to a non-accountant, the following terms:a. assetb. liabilityc. incomed. revenuee. expensef. equity.
‘The historical cost convention looks backwards but the going concern convention looks forwards’.a. Does traditional financial accounting, using the historical cost convention, make the going
Please arrange the following five symbols into an equation with no minus signs in it.A1 = assets at end of period.L1 = liabilities at end of period.OE0 = owner’s equity at beginning of period.R1 =
Why is it necessary to define an expense in terms of changes in an asset (or vice versa)rather than defining the terms independently?
What general rule can be used to decide whether a payment leads to an expense or to an asset?
What disadvantages are there in measuring assets on the basis of historical cost?
What various alternatives to historical cost could be used for the valuation of assets?Which do you prefer?
‘The four conditions of IAS 11 [see Section 8.4.4] provide entirely adequate safeguards for the use of the percentage-of-completion method for long-term contracts. When these requirements are met,
Explain the meaning of capital maintenance.
Motor vehicles are necessarily non-current (fixed) assets when:A. They are intended for continuing use in the business.B. They are more than one year old.C. They are parked with the handbrake on.D.
For a lease to be considered as a finance (capital) lease, the contract must include the eventual transfer of legal title.A. True.B. False.
Depreciation of a non-current asset is an estimate of the loss in value of the asset over the accounting period.A. True.B. False.
A firm buys a delivery van on 1 January 20X1 for €60,000. The estimated physical life is 10 years, but the firm has a policy of trading in all vans after 5 years, when the trade-in price is usually
If the firm in question 9d was to use the reducing balance method at a rate of 30 per cent each year, the depreciation for year 3 would be:A. €7,056.B. €8,820.C. €14,400.D. €18,000.
Under IAS 36, any necessary impairment charge will be equal to:A. Carrying value after depreciation at the current balance sheet date less the lower of net selling price and value in use.B. Carrying
Fair value is another name for recoverable amount.A. True.B. False.
Recoverable amount is the lower of net realizable value and economic value (value in use).A. True.B. False.
Under IAS 16, if the chosen measurement policy of fair value results in an increased valuation of a property, the effect on reported earnings will be an increase.A. True.B. False.
Under IAS 40, if the chosen measurement policy of fair value results in an increased valuation of a property, the effect on reported earnings will be a decrease.A. True.B. False.
What are the essential criteria used to distinguish a non-current asset from other assets?
‘What is relevant to investors is information about the future. Since this is not reliable, financial accountants give them irrelevant information instead’. Discuss.
Costa Co. uses three identical pieces of machinery in its factory. The cash price of these machines is €8,000 each and their estimated lives four years. These were all brought into use on the same
For each of machines 1, 2 and 3 in Exercise 9.3, outline the effect on reported profits and on the balance sheet, as included in the published financial statements.Data from in Exercise 9.3Costa Co.
‘The idea of “substance over form” supports the recording of a finance lease as an asset, even though there is no legal ownership. This suggests that the idea of substance over form is a
Does research expenditure give rise to an asset? Explain your answer.
A company borrows money at 10 per cent interest in order to finance the building of a new factory. Suggest arguments for and against the proposition that the interest costs should be capitalized and
Provide in your own words:a. an explanation of what depreciation is;b. an explanation of the net book value (NBV) of a partially depreciated non-current asset.
The payments set out in Table 9.9 have been made during the year in relation to a non-current asset bought at the beginning of the year.What cost figure should be used as the basis for the
Outline three different depreciation methods and appraise them in the context of the definition and objectives of depreciation.
The following actual and estimated figures are available.Based on these figures, evaluate the following.a. Calculate annual depreciation under the straight-line method.b. Calculate the depreciation
Are depreciation expenses either too subjective or too arbitrary to provide useful information?
The following figures relate to the production of product X:If the year’s production is 20,000 units and this product uses 25 per cent of total factory production, the unit cost for product X in
A company buys and sells units of product P as follows:Under a FIFO method, the gross profit on the sold item is:A. :20.B. :24.C. :25.D. :30. 1 January buy 2 at 30 1 February 1 March buy 3 at 40 sell
If the company in 10b uses LIFO, the gross profit is:A. :20.B. :24.C. :25.D. :30.
If the company in 10b uses the weighted average method, the gross profit is:A. :20.B. :24.C. :25.D. :30.
‘The production cost of inventory is always highly subjective and uncertain, because of the problem of overheads. Since the valuation of an inventory of manufactured items can never be reliable,
V.O. Lynn commences business on 1 January buying and selling musical instruments.She sells two standard types, violas and cellos, and her transactions for the year are as set out in Table 10.9 (all
Marcus Co. has been in operation for three years. The purchases and sales information in Table 10.10 represents the company’s activities for these three years.Prepare a schedule illustrating the
Using the information contained in Exercise 10.3, calculate the value of the year-end inventories using FIFO and LIFO. Also, prepare profit and loss accounts showing the gross profit under each of
R and A are brothers. Recently, their aunt died leaving them :1,000 each. Initially, they intended setting up in partnership selling pils and lager. However, R felt that there was no future in the
A firm buys and sells a single commodity. During a particular accounting period it makes a number of purchases of the commodity at different prices. Explain how assumptions made regarding which units
What is meant by ‘lower of cost and net realizable value’? What difficulties exist in the application of this measurement basis?
In essence, a liability is a future obligation to pay out money, arising from a past event.A. True.B. False.
Under IAS 37, a provision is a liability of uncertain timing or amount.A. True.B. False.
Under IAS 37, a ‘provision for doubtful receivables’ is not a provision.A. True.B. False.
Which one of the following is correct in IFRS terminology?A. Provisions and reserves are part of equity.B. Provisions are part of equity.C. Reserves are part of equity.D. Neither provisions nor
‘All credit balances included in a balance sheet are either capital and reserves or liabilities, actual or estimated’. Discuss.
‘The distinction between a prudent approach to the quantification of provisions on the one hand and the creation of secret reserves on the other will always be a matter for human attitude and

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