Question 1

What is the journal entry required to recognize a deferred tax asset of $50,000?

Accepted Answer

A deferred tax asset represents an amount that a company expects to use to reduce future tax payments. The journal entry to recognize a deferred tax asset is to debit Deferred Tax Asset for the amount of the asset and credit Income Tax Benefit.

Question 2

Under IFRS 15, Revenue from Contracts with Customers, which of the following is NOT one of the steps to be applied in the recognition of revenue across a wide range of transactions and industries?

Accepted Answer

Separating the transaction price for separate performance obligations is required under IFRS 15, even in bundled contracts where goods and services are not sold separately. The other steps required in the recognition of revenue under IFRS 15 are to identify the contract, identify separate performance obligations, and determine the transaction price.

Question 3

What kinds of temporary differences related to income taxes can arise under IFRS that don't occur under U.S. GAAP?

Accepted Answer

Under IFRS, revaluation of property, plant, and equipment is allowed and can result in temporary differences between book and tax purposes. This is not allowed under U.S. GAAP. Options A and B are applicable under both IFRS and U.S. GAAP, while option D is not specific to temporary differences related to income taxes.

Question 4

Under IAS 12, Income Taxes, how is the relationship between a hypothetical tax expense based on statutory rates and reported tax expense based on the effective tax rate explained?

Accepted Answer

IAS 12 requires a reconciliation between the tax expense based on the statutory rate and the tax expense based on the effective tax rate. This can be done using the statutory rate of the home country or a weighted-average statutory rate across jurisdictions where the company operates, depending on the context and what provides the most meaningful explanation.

Question 5

Which of the following is NOT a condition that must be met in order for a contract with a customer to be within the scope of IFRS 15?

Accepted Answer

One of the conditions for a contract to be within the scope of IFRS 15 is that the contract identifies each party's rights in relation to the goods or services to be transferred. Therefore, option B is not a condition that must be met. All the other options (A, C, and D) are conditions that must be met for a contract to be within the scope of IFRS 15.

Question 6

Under IFRS 2, with respect to choice-of-settlement share-based payments, if the supplier chooses the cash settlement, the entity is deemed to have issued a compound financial instrument consisting of debt and equity. When cash is received, how does the supplier apply it?

Accepted Answer

Under IFRS 2, when the supplier chooses cash settlement for a share-based payment, the cash received is applied only against the debt portion of the compound financial instrument. The equity component is not adjusted for the cash settlement.

Question 7

Under U.S. GAAP, a deferred tax asset must be realized when:

Accepted Answer

According to ASC 740-10-30-4, "the recognition of deferred tax assets is based on the existence of sufficient taxable temporary differences or on the availability of tax carryforwards. A deferred tax asset shall be recognized for the deductible temporary differences and carryforwards if it is more likely than not that sufficient taxable income will be available to realize those assets." "More likely than not" is defined as a likelihood of more than 50 percent. Therefore, option C is the correct choice.

Question 8

IFRS 15, Revenue from Contracts with Customers, covers which types of revenues?

Accepted Answer

IFRS 15 covers all types of revenues including the sale of goods, rendering of services, and royalties.

Question 9

Which of the following is a criterion that must be met to recognize revenue from the sale of goods?

Accepted Answer

The answer of Which of the following is a criterion...

Question 10

Under IFRS 2, Share-based Payment, what approach is used to account for the transaction?

Accepted Answer

Under IFRS 2, Share-based Payment, the fair value approach is used to account for the transaction. This means that the fair value of the equity instruments granted should be measured at grant date, and the value should be recognized as an expense over the vesting period. This approach provides a more accurate reflection of the cost of the share-based payment transaction.

Question 11

Under IFRS 2, with respect to choice-of-settlement share-based payments, if it is the entity that has the right to choose between equity settlement and cash settlement, when must the entity choose the cash settlement?

Accepted Answer

The entity must choose the cash settlement option under IFRS 2 only if it has a present obligation to settle in cash. This means that if the entity has a contractual obligation to pay the supplier in cash, or if it is customary in the industry to settle such transactions in cash, then the entity must choose the cash settlement option for share-based payments. Otherwise, the entity is free to choose either equity or cash settlement.

Question 12

Under U.S. GAAP, with respect to equity-settled share-based payments, if the fair value of the equity instrument is used, the value is determined:

Accepted Answer

Under U.S. GAAP, for equity-settled share-based payments, the fair value of the equity instruments granted is typically determined at the grant date, which is the earlier of the date a commitment for performance by the counterparty is reached or the date the counterparty’s service is complete.

Question 13

IAS 32 defines a financial instrument as:

Accepted Answer

IAS 32 defines a financial instrument as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Therefore, option C is the correct choice. Option A is incorrect because a currency alone does not constitute a financial instrument. Option B is incorrect because a certified check is simply a method of payment, not a financial instrument. Option D is incorrect because a recognized stock exchange is a market for trading financial instruments, not a financial instrument itself.

Question 14

Under the IASB's exposure draft, Income Tax, how would the term "substantively enacted", as it applies to tax laws, be determined?

Accepted Answer

"Substantively enacted" refers to when any future steps in the enactment process cannot change the outcome of the legislation. This means that the legislation has been sufficiently approved and can be relied upon for accounting purposes. The other options listed (A and C) may be indicators of progress in the enactment process, but do not necessarily meet the requirements for something to be considered "substantively enacted."

Question 15

Under IAS 12, Income Taxes, which of the following issues are covered?

Accepted Answer

IAS 12 covers all of the above issues, including temporary differences, operating loss carry forwards, and tax credit carry forwards.

Question 16

Under IAS 1, Presentation of Financial Statements, how must deferred taxes be classified on the balance sheet?

Accepted Answer

Under IAS 1, deferred taxes must be classified as either a noncurrent asset or a noncurrent liability. This is because they represent the tax consequences of transactions that have already occurred but will impact future periods. Current assets and liabilities represent items that are expected to be settled within 12 months, whereas noncurrent assets and liabilities represent items expected to be settled beyond that timeframe. Therefore, deferred taxes are classified as noncurrent items because their impact will not be realized within the next 12 months.

Question 17

Under IFRS 2, with respect to cash-settled share-based payments, when an employee has received stock appreciation rights, how is the fair value of those rights measured?

Accepted Answer

The fair value of stock appreciation rights in cash-settled share-based payments should be measured using an option pricing model. This is because stock appreciation rights represent a right to receive the appreciation in the stock price, similar to an option. The consolidation method and dividend discount approach are not appropriate methods for measuring the fair value of stock appreciation rights.

Question 18

Under both IFRS and U.S. GAAP, in an equity-settled share-based payment transaction, how are such payments to non-employees measured?

Accepted Answer

Both IFRS and U.S. GAAP require that payments to non-employees in equity-settled share-based payment transactions be measured at the fair value of goods or services received, if a reliable determination is available, otherwise, the fair value of the equity instrument. This is in contrast to payments to employees, which are always measured at the fair value of the equity instrument under both standards.

Question 19

How does U.S. GAAP differ from IFRS with respect to cash-settled share-based payments?

Accepted Answer

The answer of How does U.S. GAAP differ from IFRS...

Question 20

Under IAS 12, current and deferred taxes are measured on the basis of:

Accepted Answer

Current and deferred taxes are measured on the basis of rates that have been enacted or substantively enacted by the balance sheet date, as per IAS 12.

Quiz 5: International Financial Reporting Standards: Part II