Question 1

Zenith Company, a calendar-year entity, amends its defined benefit pension plan on January 1, 2019 and must recognize the increase in past service costs of its vested and non-vested employees as of that date in the calculation of its net 2019 pension expense (or revenue). The pertinent facts as of January 1, 2019 are:  Calculate the past service costs included in 2019 net pension expense (or revenue) under U.S GAAP.
A) $5,100
B) $5,400
C) $600
D) $7,000

Accepted Answer

C

Question 2

According to IAS 37, with respect to onerous contracts, a provision should be recognized for "unavoidable costs of the contract", which is:
A) the intrinsic value of the contract.
B) the lower of cost or market value of the contract.
C) the lower of cost of fulfillment or the penalty from non-fulfillment of the contract.
D) None of the above

Accepted Answer

According to IAS 37, when a contract is onerous, a provision should be recognized for the lower of the cost of fulfilling the contract and the penalty from non-fulfillment of the contract. This means that the unavoidable costs of the contract are the lower of these two amounts. Therefore, option C is the correct choice. Option A does not consider any potential penalties for non-fulfillment, while option B considers the market value of the contract, which is not necessarily relevant in determining the unavoidable costs.

Question 3

What is a "contingent asset?"
A) There is no such thing, in IASB standards, as a "contingent asset."
B) This is an asset that has been put up as collateral against a loan.
C) This is a possible inflow of resources arising from a future activity.
D) It is a probable asset, arising from past events, whose existence is yet to be confirmed definitively by a future event.

Accepted Answer

A contingent asset is a probable asset whose existence is yet to be confirmed definitively by a future event. It arises from past events and its realization depends on future events and its confirmation.

Question 4

According to IAS 37, how should contingent assets be recognized?
A) They should be disclosed in the notes to the financial statements if the inflow of resources is probable.
B) They should be recognized like any other asset, with a debit to "contingent assets."
C) They should not be disclosed anywhere in the financial statements due to their uncertainty.
D) They should only be disclosed in the notes to the financial statements if the inflows of resources are virtually certain.

Accepted Answer

According to IAS 37, contingent assets should not be recognized as assets on the financial statements as their realization is uncertain. However, if it is probable that the inflow of economic benefits will occur, disclosure of the contingent asset should be made in the notes to the financial statements. Therefore, option A is the correct answer.

Question 5

How should stock options be accounted for under IASB standard on stock options (IFRS 2)?
A) Since their value is not determinable until a future date, they are not recorded, but only disclosed in the notes to the financial statements.
B) A compensation expense is recorded based on the value of the options expected to vest as of the date the options are granted.
C) An expense is recorded only if a market value for the options exists on the date the options are granted.
D) The options are recorded as a liability for the value of the stock at the exercise date.

Accepted Answer

Under IFRS 2, stock options should be accounted for by recording a compensation expense based on the value of the options expected to vest as of the date the options are granted. This requires estimating the fair value of the options using an appropriate valuation model and taking into account factors such as the expected term, exercise price, volatility, and interest rates. The expense is recorded over the vesting period of the options, and any changes in the estimated fair value are adjusted accordingly. Thus, option values are recorded on the balance sheet as an asset and as an expense on the income statement.

Question 6

Which of the following statements is true of IAS 19?
A) It establishes guidance for measuring onerous contract.
B) It requires all past service costs to be recognized in net income in a subsequent period in which the benefit plan is changed.
C) Its revised version became effective in the year 2013.
D) It covers all employee benefits including share-based compensation.

Accepted Answer

IAS 19 was revised in the year 2013 and the revised version became effective on January 1, 2013. Option A is incorrect as IAS 37 establishes guidance for measuring onerous contracts. Option B is incorrect as IAS 19 requires past service costs to be recognized immediately in net income when the benefit plan is changed. Option D is incorrect as IFRS 2 covers share-based payments.

Question 7

Under IAS 1, Presentation of Financial Statements, which of the following is NOT a criterion in the definition of a current liability?
A) It is a liability that is expected to be settled in an entity's normal operating cycle.
B) It is a liability primarily held for the purpose of trading.
C) It is a liability that does not have the right to defer until 18 months after the balance sheet date.
D) It is a liability that is expected to be settled within 12 months of the balance sheet date.

Accepted Answer

IAS 1 defines a current liability as one expected to be settled within the entity's normal operating cycle, held primarily for trading, or due to be settled within twelve months after the reporting period. It does not specify an 18-month period for deferral.

Question 8

Which of the following represents a difference in the classification of current liabilities between IFRS and U.S. GAAP?
A) Refinanced short-term debt
B) Amounts payable on demand due to violation of debt covenants
C) Bank overdrafts
D) All of the above

Accepted Answer

IFRS treats refinanced short-term debt as a current liability if it meets certain conditions such as the creditor not having waived the right to demand repayment for more than a year. U.S. GAAP treats it as non-current if the debtor had the intention and ability to refinance before the balance sheet date. Under IFRS, amounts payable on demand due to violation of debt covenants are classified as non-current if the lender agrees not to make a demand for at least a year. Under U.S. GAAP, these are classified as current liabilities. Bank overdrafts are generally classified as current liabilities under both IFRS and U.S. GAAP.

Question 9

Zenith Company, a calendar-year entity, amends its defined benefit pension plan on January 1, 2019 and must recognize the increase in past service costs of its vested and non-vested employees as of that date in the calculation of its net 2019 pension expense (or revenue). The pertinent facts as of January 1, 2019 are:  Calculate the past service costs included in 2019 net pension expense (or revenue) under IAS 19.
A) $5,100
B) $5,400
C) $600
D) $7,000

Accepted Answer

The answer of Zenith Company, a calendar-year entity, amends its...

Question 10

Which of the following is a difference between IAS 37 and U.S. GAAP with respect to restructuring provisions?
A) U.S. GAAP does not allow recognition of a restructuring provision until a liability has been incurred.
B) There is no difference between IAS 37 and U.S. GAAP with respect to restructuring provisions.
C) IAS 37 does not allow recognition of a restructuring provision until a liability has been incurred.
D) A restructuring provision and related loss is more likely to occur later under IAS 37 than under U.S. GAAP.

Accepted Answer

Under U.S. GAAP, a restructuring provision cannot be recognized until a liability has been incurred, whereas under IAS 37 a provision can be recognized before a liability has been incurred if certain criteria are met. Therefore, there is a difference between the two standards with respect to recognition of restructuring provisions. Option B is incorrect as it states there is no difference between the two standards, which is not true. Option C is incorrect as it misrepresents IAS 37 as not allowing recognition of a restructuring provision until a liability has been incurred. Option D is irrelevant to the question as it does not relate to the differences between the two standards regarding restructuring provisions.

Question 11

The term "provision" as it is used in IAS 37, is most closely related to what term in U.S. GAAP?
A) Contingent liability, where the outflow of resources is "remote."
B) Contingent liability, where the outflow of resources is "probable."
C) Current liability, where the outflow is difficult to measure.
D) Reserve for bad debt, where the amount recoverable is "uncertain."

Accepted Answer

The term "provision" in IAS 37 is similar to the term "contingent liability" in U.S. GAAP. Both refer to a possible obligation that may or may not occur, and where the amount and timing of the outflow of resources is uncertain. However, the difference lies in the probability of the obligation occurring. In IAS 37, a provision is recognized when the outflow of resources is "probable," whereas in U.S. GAAP, a contingent liability is recognized when the probability of the outflow of resources is "likely" or more than 50%. Therefore, option B is the best choice as it refers to a contingent liability where the probability of the outflow of resources is high enough to recognize it as a liability.

Question 12

Which of the following statements is true of the treatment of actuarial gains and losses under IFRS and U.S. GAAP?
A) IFRS requires the disclosure of actuarial gains and losses in the notes to financial statements.
B) IFRS requires immediate recognition of actuarial gains and losses in net income.
C) U.S. GAAP allows a choice between immediate recognition in other comprehensive income or in net income.
D) U.S. GAAP requires the actuarial gains and losses to be recognized immediately through other comprehensive income.

Accepted Answer

U.S. GAAP allows a choice between immediate recognition in other comprehensive income or in net income.

Question 13

Why is it difficult to compare IFRS15/ASC606, Revenue, to U.S. GAAP?
A) The IASB definition of revenue is very complicated, whereas the definition of revenue under U.S. GAAP is straightforward.
B) Revenue is not defined under U.S. GAAP.
C) There is no single standard in U.S. GAAP that deals solely with revenue.
D) Under U.S. GAAP, revenue is defined in terms of cash, whereas IAS 18 defines revenue in terms of a variety of resources.

Accepted Answer

U.S. GAAP does not have a single standard that deals solely with revenue, whereas IFRS 15/ASC 606 focuses solely on revenue recognition. Therefore, it is difficult to compare the two standards directly. Additionally, the IASB definition of revenue is not necessarily more complicated than that of U.S. GAAP, as both standards require significant judgment and interpretation in applying the rules to specific transactions.

Question 14

Under IAS 19, Employee Benefits, which of the following benefits are covered?
A) Compensated absences and bonuses
B) Post-employment benefits
C) Deferred compensation and disability benefits
D) All of the above

Accepted Answer

Under IAS 19, all of the mentioned benefits are covered. Compensated absences and bonuses fall under short-term benefits, post-employment benefits include defined benefit plans, defined contribution plans, and other post-employment benefits, and deferred compensation and disability benefits are categorized as other long-term benefits.

Question 15

Under IAS 37, how are contingent liabilities treated in the financial statements?
A) IAS 37 does not address contingent liabilities.
B) They are recorded as current liabilities if the amount is reasonably measured.
C) They are disclosed in the notes to the financial statements when there is more than a remote possibility of an outflow of resources.
D) They are not disclosed.

Accepted Answer

Contingent liabilities are disclosed in the notes to the financial statements when there is more than a remote possibility of an outflow of resources under IAS 37.

Question 16

Under IAS 37, inflows of resources that are "virtually certain" to be received should be:
A) disclosed as contingent assets in the notes to the financial statements.
B) recognized as assets.
C) undisclosed until management is absolutely certain that resources will be received.
D) reported only in the cash flow statement.

Accepted Answer

Under IAS 37, inflows of resources that are "virtually certain" to be received should be recognized as assets. This means that they should be included in the balance sheet and reported as part of the company's assets. Contingent assets, on the other hand, refer to possible assets that may arise from past events, but whose existence and value are uncertain. They are disclosed in the notes to the financial statements rather than recognized as assets. Therefore, choice A is not correct. Choice C is also not correct, as the standard requires recognition of virtually certain inflows of resources as assets. Choice D is not correct, as the cash flow statement only reports cash inflows and outflows, and is not relevant to the recognition of non-cash assets.

Question 17

Which of the following is NOT a share-based payment transaction under IFRS 2?
A) Equity-settled share-based payment
B) Cash-settled share-based payment
C) Choice-of-settlement share-based payment
D) All of the above are share-based payment transactions under IFRS 2.

Accepted Answer

All of the options listed (A, B, and C) are types of share-based payment transactions under IFRS 2.

Question 18

The primary difference between IAS 37, and U.S. GAAP concerning the treatment of contingent liabilities pertains to:
A) definition of terms.
B) measurement.
C) classification on the balance sheet.
D) disclosure of relevant information.

Accepted Answer

The answer of The primary difference between IAS 37, and...

Question 19

How does U.S. GAAP require the prior service cost related to retirees to be recognized?
A) Amortize over the average remaining working lives of active employees
B) Recognize immediately
C) Don't recognize at all
D) Amortize over remaining expected life of the retirees

Accepted Answer

U.S. GAAP requires that the prior service cost related to retirees be recognized by amortizing it over the remaining expected life of the retirees. This is done in order to match the cost with the period in which the retirees provide service to the company.

Question 20

With respect to post-employment medical benefits, U.S. GAAP:
A) does not recognize the concept of post-employment medical benefits.
B) has considerably less guidance than IAS 19.
C) follows the guidance of IAS 19.
D) has considerably more guidance than IAS 19.

Accepted Answer

U.S. GAAP has considerably more detailed and specific guidance on accounting for post-employment benefits, including medical benefits, compared to IAS 19, which provides the international standards for employee benefits.

Quiz 5: International Financial Reporting Standards: Part II

According to IAS 37, with respect to onerous contracts, a provision should be recognized for "unavoidable costs of the contract", which is:

What is a "contingent asset?"

According to IAS 37, how should contingent assets be recognized?

How should stock options be accounted for under IASB standard on stock options (IFRS 2) ?

Which of the following statements is true of IAS 19?

Under IAS 1, Presentation of Financial Statements, which of the following is NOT a criterion in the definition of a current liability?

Which of the following represents a difference in the classification of current liabilities between IFRS and U.S. GAAP?

Which of the following is a difference between IAS 37 and U.S. GAAP with respect to restructuring provisions?

The term "provision" as it is used in IAS 37, is most closely related to what term in U.S. GAAP?

Which of the following statements is true of the treatment of actuarial gains and losses under IFRS and U.S. GAAP?

Why is it difficult to compare IFRS15/ASC606, Revenue, to U.S. GAAP?

Under IAS 19, Employee Benefits, which of the following benefits are covered?

Under IAS 37, how are contingent liabilities treated in the financial statements?

Under IAS 37, inflows of resources that are "virtually certain" to be received should be:

Which of the following is NOT a share-based payment transaction under IFRS 2?

The primary difference between IAS 37, and U.S. GAAP concerning the treatment of contingent liabilities pertains to:

How does U.S. GAAP require the prior service cost related to retirees to be recognized?

With respect to post-employment medical benefits, U.S. GAAP: