Question 1

What is the correct order of steps in applying the revenue recognition model?
1)Identify the separate performance obligations in the contract
2)Identify the contract with the customer
3)Determine the transaction price for the entire contract
4)Recognize revenue when each separate performance obligation is satisfied
5)Allocate the transaction price to separate performance obligation
A)2)1)3)5)4)
B)1)2)3)4)5)
C)1)2)3)5)4)
D)2)1)3)4)5)

Accepted Answer

The correct order for applying the revenue recognition model is: 1) Identify the contract with the customer, 2) Identify the separate performance obligations in the contract, 3) Determine the transaction price for the entire contract, 4) Allocate the transaction price to the separate performance obligations, and 5) Recognize revenue when each separate performance obligation is satisfied.

Question 2

Which of the following statements is true regarding revenue recognition?
A)A major goal of the IASB/FASB Convergence Project is agreement on a single definition of revenue recognition
B)The agreement would eliminate the complex differences in revenue recognition that currently exist between U.S.GAAP and IFRS
C)All of the above
D)None of the above

Accepted Answer

Both statements A and B are true. The IASB/FASB Convergence Project aims to achieve a single definition of revenue recognition that would eliminate the complex differences between U.S. GAAP and IFRS in revenue recognition.

Question 3

Which following factors are taken into consideration when determining whether a performance obligation has been satisfied?
A)The entity has right to payment
B)The customer has legal title or a service has been performed
C)The customer has physical possession
D)The risks and rewards of ownership have been transferred to the customer
E)All of the above

Accepted Answer

All of the above factors are taken into consideration when determining whether a performance obligation has been satisfied. The entity has a right to payment when it has fulfilled its duties towards the customer. Legal title or a service performed means that ownership or benefit of the service has been transferred to the customer. Physical possession is important in determining when control of the product or service has been transferred to the customer. Risk and rewards of ownership are transferred to the customer when they assume the risks and benefits of owning the product or service. All these factors need to be satisfied in order to determine if a performance obligation has been satisfied.

Question 4

Which of the following is not true regarding performance obligation?
A)The amount of revenue recognized would be the amount of consideration promised by the customer in exchange for the performance obligation
B)Most sales and service contracts consists of a single performance obligation.
C)A contract may consist of several performance obligations.
D)The entity has right to payment determines a performance obligation has been satisfied.

Accepted Answer

The right to payment is not what determines if a performance obligation has been satisfied; rather, it is the transfer of control of goods or services to the customer.

Question 5

Which of the following arguments regarding principle-based standards is correct?
A)Contain bright-line tests
B)Have many exceptions
C)Are inconsistent with and derived from a conceptual framework
D)Present a concise explanation of the accounting objective and the integration of the objective into the standard

Accepted Answer

Principle-based standards present a concise explanation of the accounting objective and the integration of the objective into the standard. They are also consistent with and derived from a conceptual framework. Bright-line tests are more associated with rules-based standards, and many exceptions are not necessarily a characteristic of either principle-based or rules-based standards.

Question 6

Which methods do IFRS and U.S.GAAP typically record service revenue,respectively?
A)Percentage-of-completion method,completed-contract method
B)Relying on specific industry guidance,completed-contract method
C)Percentage-of-completion method,relying on specific industry guidance
D)Completed-contract method,percentage-of-completion method

Accepted Answer

Both IFRS and U.S. GAAP allow the use of the percentage-of-completion method to recognize service revenue. Additionally, U.S. GAAP provides specific industry guidance in certain situations. Therefore, the best choice is C, which includes both the percentage-of-completion method and relying on specific industry guidance. Option A and D, which include either percentage-of-completion or completed-contract method exclusively, are not complete or accurate. Option B is incorrect since it only mentions specific industry guidance without mentioning a specific revenue recognition method.

Question 7

Which one is not a characteristic of rules-based standards?
A)More reliance on conceptual framework
B)Less reliance on professional judgment
C)More level of detailed guidance
D)Extensive amount of industry specific guidance

Accepted Answer

Rules-based standards typically involve less reliance on a conceptual framework because they provide detailed guidance, including extensive amounts of industry-specific guidance, and require less professional judgment due to their specificity.

Question 8

Which of the following statements is true regarding the differences between how recycling occurs in U.S.GAAP and IFRS?
A)Actuarial gains and losses are recycled under IFRS
B)IFRS recognize the OCI amount immediately in retained earnings.
C)U.S.GAAP forbid recycling of revaluation surplus associated with long-lived assets.
D)IFRS forbid recycling of revaluation surplus associated with short-term assets.

Accepted Answer

The answer of Which of the following statements is true...

Question 9

Which of the following is critical to principles-based standards?
A)May lose comparability because of management and auditor discretion in the application of the principles
B)Provide greater difficulty in seeking remedies against "bad actors" through either enforcement or litigation
C)Cause concerns to preparers and auditors that regulatory agencies might not accept good faith judgments
D)All of the above

Accepted Answer

All three options are critical to principles-based standards. The flexibility of the principles-based approach allows for more management and auditor discretion, which may lead to a loss of comparability. Additionally, enforcing principles-based standards can be more challenging due to the subjective nature of the approach, and there may be concerns among preparers and auditors regarding whether regulatory agencies will accept their good faith judgments.

Question 10

Which of the following arguments regarding pure rules-based standards is not correct?
A)May not relate to the conceptual framework,but to more specific,prescriptive rules
B)Provide detailed,interpretive guidance to address the application for every possible transaction
C)Place much reliance on the professional judgment of the preparer
D)Result in acts of compliance as opposed to means of communicating information

Accepted Answer

Pure rules-based standards are designed to minimize the need for professional judgment by providing detailed guidance for specific situations. This contrasts with principles-based standards, which rely more heavily on the professional judgment of the preparer.

Question 11

Which of the following statements regarding the difference between U.S.GAAP and IFRS is correct?
A)IFRS has significant guidance for transactions,industries,exceptions,and specific recognition and measurement guidance.
B)U.S.GAAP contains broad principles to account for transactions across industries,with limited specific guidance and stated exceptions to the general guidance.
C)In application,U.S.GAAP may be more aligned with IFRS than what might be apparent from the standards themselves.
D)U.S.GAAP has requirements that are specific to the U.S legal and regulatory environment while IFRS were not developed for any particular jurisdiction.

Accepted Answer

U.S. GAAP is known for its detailed rules and specific guidance tailored to the U.S. legal and regulatory environment, whereas IFRS is designed to be applied globally and is not tailored to any specific legal jurisdiction, making it more principle-based.

Question 12

Which of the following is correct regarding the guidance provided by IFRS and U.S.GAAP?
A)In the construction industry,IFRS provides specific guidance for revenue recognition on contracts.
B)In the software industry,IFRS provides specific guidance for typical software arrangements,upfront fees,and multiple deliverable arrangements.
C)In the software industry,U.S.GAAP only provides general guidance.
D)None of the above.

Accepted Answer

IFRS provides specific guidance for revenue recognition on contracts in the construction industry, which is part of IAS 11 Construction Contracts. This standard offers detailed instructions on accounting for construction contracts, a key area where IFRS gives explicit guidance.

Question 13

Which are two conditions that must be met before revenue is to be recognized under IFRS?
A)Persuasive evidence of an arrangement exists and product or service can be delivered
B)Product or service can delivered and collectability is reasonably assured
C)Persuasive evidence of an arrangement exists and the market of the products or services are well regulated
D)Seller's price to the buyer is fixed or determinable and collectability is reasonably assured

Accepted Answer

Revenue can only be recognized when the seller's price to the buyer is fixed or determinable and collectability is reasonably assured. This is in accordance with the IFRS framework for revenue recognition. The other options may be necessary for other aspects of accounting, but are not specifically related to revenue recognition.

Question 14

Under IFRS and U.S.GAAP,which one is not included when recycling occurs?
A)Unrealized gains and losses on available-for-sale securities
B)Unrealized gains and losses on effective cash flow hedges
C)Unrealized gains and losses on goodwill
D)Cumulative foreign currency translation adjustments

Accepted Answer

Under both IFRS and U.S.GAAP, when recycling occurs, unrealized gains and losses on available-for-sale securities, unrealized gains and losses on effective cash flow hedges, and cumulative foreign currency translation adjustments are included. However, unrealized gains and losses on goodwill are not included when recycling occurs.

Question 15

Assume that Yosuke wants to rent a room at a Lakeview apartment,the landlord requires a one-time,non-refundable $50 application fee and a contract cancelable with 5 days notice,charges $500 per month to rent the apartment for the next 12 months.How are the $50 application fee and the $500 monthly rental accounted for under U.S.GAAP or under IFRS?
A)Under U.S.GAAP,the $50 payment is recognized as revenue immediately,while the $500 payment is recorded as revenue each month.
B)Under U.S.GAAP,the $50 payment is recorded as unearned revenue and allocated over a reasonable future period.The $500 payment is recorded as revenue each month.
C)Under IFRS,the $50 payment is recorded as unearned revenue and allocated over a reasonable future period.The $500 payment is recorded as revenue each month.
D)None of the above.

Accepted Answer

Under U.S. GAAP, the $50 payment is recognized as unearned revenue and allocated over a reasonable future period. The $500 payment is recorded as revenue each month. This is because the application fee does not represent revenue earned by the landlord at the time of payment, but rather represents a deposit towards the potential rental agreement. Therefore, it is initially recorded as unearned revenue and recognized over the period that the rental agreement is in effect. The monthly rental payments represent revenue earned by the landlord during that month and are recognized as revenue in that period. This treatment is consistent with the matching principle in accounting, which requires that expenses be matched with the revenue they help to generate. Under IFRS, the treatment would be similar to that under U.S. GAAP, so option C would also be a valid choice.

Quiz 3: Key Differences Between IFRS and US-Part 1

Which of the following statements is true regarding revenue recognition?

Which following factors are taken into consideration when determining whether a performance obligation has been satisfied?

Which of the following is not true regarding performance obligation?

Which of the following arguments regarding principle-based standards is correct?

Which methods do IFRS and U.S.GAAP typically record service revenue,respectively?

Which one is not a characteristic of rules-based standards?

Which of the following statements is true regarding the differences between how recycling occurs in U.S.GAAP and IFRS?

Which of the following is critical to principles-based standards?

Which of the following arguments regarding pure rules-based standards is not correct?

Which of the following statements regarding the difference between U.S.GAAP and IFRS is correct?

Which of the following is correct regarding the guidance provided by IFRS and U.S.GAAP?

Which are two conditions that must be met before revenue is to be recognized under IFRS?

Under IFRS and U.S.GAAP,which one is not included when recycling occurs?