International accounting

1. Although revaluation of intangible assets is allowed using IFRS, it is uncommon in practice. This is most likely because:
a. The journal entries are too difficult.
b. Intangible assets always decrease in value.
c. It requires comparison to an active ma

c. It requires comparison to an active market for the specific intangible.

2. If a company revalues an intangible asset for the first time and the revaluation is downward, then the journal entry will involve:
a. A debit to expense and a credit to the intangible asset.
b. A debit to the intangible asset and a credit to income.
c.

a. A debit to expense and a credit to the intangible asset.

3. If a company revalues an intangible asset for the first time and the revaluation is upward, then the journal entry will involve:

c. A debit to the intangible asset and a credit through OCI to revaluation surplus.

4. Using IFRS, the term "value in use" is defined as:
a. The summation of undiscounted cash flows.
b. The present value of future cash flows in use, including disposal value.
c. Fair value.
d. Fair value less selling costs.

b. The present value of future cash flows in use, including disposal value.

5. Using IFRS, the impairment calculation requires use of the recoverable amount. Recoverable amount is defined as:

The greater of the fair value less the costs to sell and the value in use.

6. Using IFRS, limited-life intangibles, indefinite-lived intangibles and goodwill are tested for impairment:

d. Annually, annually and annually, respectively.

7. The treatment for negative goodwill is:

a. It is recognized immediately as income for both US GAAP and IFRS.

8. Pharma, Inc. has identified a list of expenditures it believes to be intangible assets. Which items would be recognized as an asset using US GAAP? Which items would be recognized as an asset using IFRS?

identify

a. Patent purchased from a competitor

YES, YES

b. Legal fees to defend the purchased patent.

YES, no

c. Research on potential formulas before technical feasibility has been reached

NO, NO

d. Development of new formulas, after feasibility and business plans have been established.

NO YES

Legal fees for a patent for the newly developed formula.

YES YES

f. Customer list purchased from a competitor.

YES YES

. Goodwill included in the purchase of Pills.com, Inc

YES YES

h. Direct-response advertising that meets the criteria in ASC 340-20-25-4.

YES NO

i. Internally developed marketing plan for new drugs

no; no

1. Lessees classify all leases using IFRS as follows:
a. Operating leases
b. Financing leases
c. Operating, capital or sales-type leases
d. a. or b.

a. Operating leases
b. Financing leases

2. Lessees classify all leases using US GAAP as follows:
a. Operating leases
b. Operating, direct-financing or sales-type leases
c. Capital leases
d. a. or c.

a. Operating leases
b. capital

4. Name one of the additional indicators that IFRS has for lease capitalization that US GAAP does not.

? The leased assets are of such a specialized nature such that only the lessee can use them without major modifications being made.
? The lessee bears the lessor's losses if the lessee cancels the lease.
? The lessee absorbs the gains or losses from fluct

5. Which of the following is the most compelling indicator that a lease is a finance lease using IFRS?
a. Ownership is transferred to a lessee at the end of the lease term.
b. The lease term is equal to a major part of the estimated economic life of the l

a. Ownership is transferred to a lessee at the end of the lease term.

7. Minimum lease payments for a lessee under IFRS include the following:
a. Required payments specified under the lease agreement
b. Any amounts guaranteed by the lessee or by a related party to the lessee

a. Required payments specified under the lease agreement
b. Any amounts guaranteed by the lessee or by a related party to the lessee

5. Which of the following is the most compelling indicator that a lease is a finance lease using IFRS?
a. Ownership is transferred to a lessee at the end of the lease term.
b. The lease term is equal to a major part of the estimated economic life of the l

a

7. Minimum lease payments for a lessee under IFRS include the following:
a. Required payments specified under the lease agreement
b. Any amounts guaranteed by the lessee or by a related party to the lessee
c. Direct costs of the lessee necessary to consum

d

10. If a company is determining the present value of the minimum lease payments under a lease, what interest rate should be used as the discount rate using IFRS?

a. The lessor's implicit interest rate if it is known.

11. When a lease is classified as a capital/finance lease based on capitalization criteria where the transfer of ownership is reasonably assured, would the depreciation term for the leased asset be different between US GAAP and IFRS? If so, what is the di

US GAAP uses the lease term whereas IFRS uses the shorter of the lease term or remaining life of the asset

13. Using IFRS, capitalized assets and related liabilities are recognized at:
a. The lower of the fair value of the leased asset or the net present value of the minimum lease payments at the inception date of the lease.
b. The lower of the fair value of t

a. The lower of the fair value of the leased asset or the net present value of the minimum lease payments at the inception date of the lease.

15. Initial direct costs for capital/finance leases under US GAAP:a. For direct-finance leases, these costs are capitalized as part of the net investment in the lease and amortized over the lease term so as to produce a constant periodic rate of return on

a. For direct-finance leases, these costs are capitalized as part of the net investment in the lease and amortized over the lease term so as to produce a constant periodic rate of return on the net investment.
d. For sales-type leases, these costs are exp

16. Initial direct costs for capital/finance leases under IFRS:
a. These costs are capitalized as part of the net investment in the lease and amortized over the lease term to produce a constant periodic rate of return on the net investment.
b. These costs

b. These costs are added to the carrying value of the leased assets and depreciated over the lease term on the same basis as rental income.
d. These costs are immediately expensed for only manufacturers and dealer lessors.

17. The initial direct costs of an operating lease by a lessor:
a. Are deferred and allocated over the lease term in proportion to the recognition of rental income using US GAAP.
b. Are first added to the carrying value of the leased asset using IFRS (exc

a. Are deferred and allocated over the lease term in proportion to the recognition of rental income using US GAAP.
b. Are first added to the carrying value of the leased asset using IFRS (excluding manufacturing and dealer lessors) and then recognized as

18. The interest rate implicit in a lease is the discount rate that, at the inception of the lease, causes the aggregate present value of the minimum lease payments and residual value to be equal to:
a. The fair value of the asset.
b. The fair value of th

d. The fair value of the asset plus any initial direct costs of the lessor.

19. Receipts to a lessor from operating leases are recognized:a. On a straight-line basis over the lease period or another systematic basis using both US GAAP and IFRS.
b. On a straight-line basis over the life of the asset using both US GAAP and IFRS.
c.

a. On a straight-line basis over the lease period or another systematic basis using both US GAAP and IFRS.

20. Rent holidays for an operating lease using lessee accounting are:

a. Free-rent periods given as an incentive by the lessor.
b. Accounted for similarly under both US GAAP and IFRS.
c. Are often accounted for incorrectly and have been responsible for a significant number of financial statement restatements in the past.
"A

21. Using IFRS, future lease payments for an operating lease include what required disclosures?

c. The first year, years two through five inclusive and the aggregate amount thereafter.

1. Which of the following is true regarding the lower of cost or market principle?
a. IFRS typically results in lower write-downs than US GAAP.
b. Reversals of prior write-downs are allowed using US GAAP, but not using IFRS.
c. Write-ups of inventory abov

a. IFRS typically results in lower write-downs than US GAAP.

2. Which of the following is true regarding write-downs to lower of cost or net realizable value using IFRS?
a. Write-downs must be recorded in cost of goods sold.
b. Write-downs must be recorded in other expense.
c. IFRS does not specify where the write-

c. IFRS does not specify where the write-down should be included on the income statement.

3. Using IFRS, the journal entry to write inventory down to the lower of cost or net realizable value includes which of the following:
a. A debit to inventory write-down expense and a credit to inventory valuation allowance.
b. A debit to inventory valuat

a. A debit to inventory write-down expense and a credit to inventory valuation allowance.

4. A company has two inventory items of a similar nature and use. One item is held at the company's headquarters in Spain and one is held in France. Using IFRS:
a. The company can use different cost flow assumptions for the inventory.
b. The company must

b. The company must use the same cost flow assumptions for the inventory.

5. Intangible assets produced for resale are inventory:
a. Using US GAAP and IFRS.
b. Using IFRS, but not using US GAAP.
c. Using US GAAP, but not using IFRS.
d. Using neither set of standards.

b. Using IFRS, but not using US GAAP

6. Interest is never capitalized using IFRS.
a. True
b. False

b. False

Which of the following standards will allow companies to choose between capitalizing and expensing borrowing costs incurred during the construction of a fixed asset?
a. US GAAP
b. IFRS
c. Both US GAAP and IFRS.
d. None of the above.

d. None of the above.

Which of the following standards allows a company to revalue its PP&E after acquisition?
a. US GAAP
b. IFRS
c. Both US GAAP and IFRS.
d. None of the above.

b. IFRS

A French company reporting using IFRS purchased its only building on January 1, 2009, for �20,000,000. The building has a 20-year useful life with no net salvage value. The building is being depreciated on a straight-line basis. Assume the company intends

e. �1,000,000 Gain - should be recorded as credit through OCI to revaluation surplus.

4. A company owns a piece of equipment with a net cost of $30,000 (cost of $50,000 net of accumulated depreciation of $20,000). There are indicators that this equipment is impaired. The expected net future undiscounted cash flows are $31,000. The expected

GAAP:
a. $0
The expected net future undiscounted cash flows exceed the net cost so no impairment is required.
UNDISCOUNTED CF$31,000.>FV of $25,000

B. What is the impairment loss using IFRS?
a. $0
b. $2,000
c. $5,000
d. None of the above.

net cost of $30,000- recovery cost
recovery cost = higher of:
a. fair value= 25,000
** b. expected net future discounted cash flows= $28,000.
30,000-28,000=2,000

5. A company uses the cost method. A machine was purchased January 1, 2009 ($100,000). The company believes the machine will not have any net salvage value at the end of its 10-year useful life. The machine is depreciated using the straight-line depreciat

b. 60,000
The machine cannot be written up beyond what its original adjusted cost would have been: the cost of $100,000 less $40,000 of depreciation.

purchased January 1, 2009 ($100,000).
10-year useful life.
December 31, 2010, written down by $24,000.
At December 31, 2012, $70,000 FV
What is the recorded net value of this machine on December 31, 2012, using US GAAP?
a. $42,000
b. $60,000
c. $70,000
d.

a. 42,000
adjusted cost:
$100,000
- $20,000 accumulated depreciation (2009, 2010)
- $24,000 impairment (writedown 2010)
= $56,000. (net value 2010)
-14,000 depreciation (2011, 2012)
=42,000
100,000/10= 10,000 depr rec until writedown 2010
The $56,000 adju

6. =building value of $120,000
December 31, 2011. 5 Y life & revaluation surplus=$50K OCI
sells December 31, 2011, for $200,000.
What is the gain to be recorded on this transaction?
a. $80,000
b. $130,000
c. $200,000
d. None of the above.

a. $80,000
gain is simply the $200,000 less $120,000.
ignore OCI= retained earnings

7. bulldozer for $500,000. useful life 10 years. The treads w $50,000 replaced every five years. The blade $20,000 and needs to be replaced every two years. At the end of year one what would be the "minimum" difference in depreciation expense using US GAA

e. None of the above.

8. What are the primary differences between US GAAP and IFRS related to capitalizing borrowing costs related to acquisition of an asset?
a. With convergence, there will be no differences.
b. Interest costs will be capitalized using US GAAP and expensed us

c. Investment income will be netted against interest expense using IFRS but not using US GAAP.
d. Exchange rate differences are included in interest cost using IFRS but not using US GAAP.
e. Both c. and d.

Subsequent to the original acquisition of PP&E, what valuation model is permitted by IFRS but is prohibited using US GAAP?

revaluation

Describe the primary difference between US GAAP and IFRS in accounting for the reversal of an impairment related to PP&E.

10. US GAAP does not allow for the reversal of an impairment reserve on PP&E, while IFRS does permit it, subject to certain limitations.

15. Under IFRS, there exists an account referred to as the "revaluation surplus" account.
a. What type of account is this and what is it used for?

15. a. The account is included in OCI. It is used to revalue property, plant and equipment.

b. Is the normal account balance for this account a debit or credit? Can the account ever carry a balance that is not the normal account balance?

b. The normal account balance is a credit. No, the revaluation surplus cannot have a debit balance. This is because downward revaluations are reported in net income and not OCI except to the extent that the devaluation is a reversal of a prior upward reva