Deck 11: International Accounting for Price Changes

Question 1

Inflation is

A) only experienced in developing countries
B) most likely in the midst of a country's recession
C) never going to take place in a developed country
D) a worldwide phenomenon

Answer 1

D

Question 2

In Brazil, current company law requires a general indexation approach to restate historical costs in terms of current purchasing power as of the date of the financial statements.

Answer 2

False

Question 3

Cash does not lose purchasing power during an inflationary period.

Answer 3

False

Question 4

Current value accounting

A) is required for Dutch companies.
B) takes into consideration that the prices of specific assets have changed.
C) assumes that the purchasing power of money has gone up.
D) is required by the FASB to be used in highly inflationary countries.

Question 5

Mexico has never had a hyperinflation problem.

Question 6

Current UK GAAP does not require current value accounting reporting.

Question 7

In high inflation economies financial liabilities are

A) poor choices for MNEs to have on the balance sheet
B) good choices for MNEs to have on the balance sheet
C) questioned by labor unions
D) restrictive for MNEs

Question 8

Current US GAAP requires SFAS 33 statements.

Question 9

The effect of inflation can result in inefficient operation decisions by management.

Question 10

Assume that Costa Plc buys a machine in 2003 for $200,000 when the general price index is 150. At the end of 2006, the index has risen to 210 and the current cost of the machine is $300,000. What would be the unrealized holding gain in constant purchasing power terms?

A) $100,000
B) $220,000
C) $120,000
D) $ 80,000
E) $ 20,000
F) $280,000

Question 11

The effect of inflation on nonmonetary assets is reflected in the

A) only I
B) only II
C) both I and II
D) neither I or II

Question 12

General purchasing power accounting includes constant dollar accounting.

Question 13

Netherlands is well known for the development of replacement value accounting.

Question 14

Current value accounting results in holding gains and losses when nonmonetary assets are revalued.

Question 15

Assume that Costa Plc buys a machine in 2003 for $200,000 when the general price index is 150. At the end of 2006, the index has risen to 210 and the current cost of the machine is $300,000. What is the current cost gain or loss net of inflation?

A) $100,000
B) $220,000
C) $120,000
D) $ 80,000
E) $ 20,000

Question 16

Which of the following countries have not experienced hyperinflation

A) Russia
B) Brazil
C) Mexico
D) United Kingdom

Question 17

According to the Philips approach to accounting for inflation,

A) a gearing adjustment was used to reflect the extent to which the company benefits from financing the purchase of capital assets by long term debt rather than by equity.
B) net realizable value was used to value assets, but replacement values were not used.
C) target costs were used for inventory rather than standard costs.
D) physical assets were adjusted to current values, but there was no gain or loss from holding net financial assets.

Question 18

Assume that Costa Plc buys a machine in 2003 for $200,000 when the general price index is 150. At the end of 2006, the index has risen to 210 and the current cost of the machine is $300,000. What is the unrealized holding gain in current cost terms?

A) $100,000
B) $220,000
C) $120,000
D) $ 80,000
E) $ 20,000
F) $280,000

Question 19

IAS 29 is the current IASB standard on hyperinflationary economies.

Question 20

General purchasing power accounting

A) is required for U.S. companies if the inflation rate exceeds 10 percent three years in a row.
B) is designed to report accounts in units of the same purchasing power.
C) assumes that the general level of inflation is irrelevant.
D) is not permitted in British accounting.

Question 21

IAS 16 requires the

A) current value accounting on property, plant and equipment
B) general purchasing power on property, plant and equipment
C) current value accounting on all assets and liabilities
D) general purchasing power on all assets and liabilities

Question 22

What has been the trend in inflation accounting in Britain and the U.S.?

A) change to current cost accounting
B) change to general purchasing power adjustments
C) continued use of an index in general purchasing power statements
D) dropping of inflation accounting

Question 23

IAS 15 on inflation approach did require the
I).general purchasing power approach
II).current cost approach

A) only I
B) only II
C) either I or II
D) neither I or II

Question 24

The International Accounting Standards Board

A) takes a particular stand on the type of inflation accounting that it wants firms to use.
B) relies more on accounting for inflation than it does disclosure.
C) requires that firms restate their financial statements for general purchasing power when they are operating in hyperinflationary economies.
D) does not want firms to account for inflation, except in hyperinflationary countries.

Question 25

Shared values and attitudes

A) affect business and managerial behavior, which is similar from country to country due to inflation.
B) are so deeply ingrained that they are usually not influenced by world wide inflation forces.
C) are also known as culture.
D) all of the above.

Question 26

During the 1990s, Philips reverted back from inflation-adjusted statements to historical cost statements in order to
I).improve communications to shareholders
II).simplify accounting systems

A) only I
B) only II
C) I and II
D) neither I or II

Question 27

Philips introduced current value financial statements

A) to be consistent with international accounting standards
B) because no company was using general purchasing power adjustments
C) for internal cost accounting purposes
D) to consolidate the Indonesian subsidiary

Question 28

What is the trend in inflation accounting in South American countries of Argentina and Brazil

A) change to current cost accounting
B) dropping of inflation accounting
C) change to general purchasing power adjustments
D) continued use of an index in general purchasing power statements

Question 29

Inflation accounting regulations would tend to be more detailed and comprehensive in which of the following systems?

A) the common law system.
B) countries that follow the British tradition.
C) the civil law system.
D) countries where culture is influential.

Question 30

A major difference between the British and U.S. approach to inflation accounting (before the standards were withdrawn) was that

A) the British were allowed to use current cost accounting in primary or supplementary financial statements.
B) the British did not permit a gearing adjustment.
C) the U.S. allowed general purchasing power adjustments but not current cost adjustments.
D) U.S. firms took their inflation adjustments to a reserve account.

Question 31

Professor Limperg believed
I).internal management decision-makers should use current value information
II).external investor decision-makers should use current value information

A) only I
B) only II
C) I and II
D) neither I or II

Question 32

In Brazil, for 20 years during the last half of the 20^th century

A) a general indexation approach to restate historical costs in terms of current purchasing power.
B) current cost accounting was used
C) used SFAS 33.
D) company law required current replacement cost reports.

Question 33

In Britain,

A) companies use general purchasing power accounting
B) many companies have periodic revaluations of their land and buildings to market values
C) has a weak relation between economics and accounting
D) inflation rules are kept because of the fear of renewed higher prices relative to the remainder of Europe.

Question 34

US SFAS 33 inflation accounting

A) used only current cost accounting
B) was only experimental
C) used only general purchasing power accounting
D) allowed the use of either general purchasing power or current cost disclosures

Question 35

Current cost accounting is required in the
I).UK
II).US

A) only I
B) only II
C) I and II
D) neither I nor II

Question 36

FASB

A) is the only standard setting body actively working to introduce general purchasing power accounting
B) is working with the IASB working to introduce general purchasing power accounting
C) is not considering a standard for general purchasing power accounting.
D) is in favor of a reserve account for inflation.

Question 37

Professor Limperg believed

A) in general purchasing power accounting
B) that income is a function of revenues and replacement values
C) in a weak relation between economics and accounting
D) in the gold standard

Question 38

Which of the following is true concerning inflation disclosures?

A) The gearing adjustment was developed primarily for the auto industry.
B) The Dutch prefer to use historical cost accounting due to its objectivity.
C) Current cost adjustments are based on the fact that the value of money has fallen.
D) The IASB does not recommend one specific approach to account for inflation.

Question 39

Which of the following reflects the treatment of inflation accounting in the European Union?

A) The 4th Directive does not allow an alternative to historical cost due to the influence of the Germans.
B) Firms are allowed to provide supplemental current cost information.
C) Firms are not allowed to put their financial statements in terms of current costs, even if they provide supplemental historical cost information.
D) none of the above.

Question 40

A major influence of Dutch interest in current value accounting

A) is the extensive training of accountants in business economics
B) is the tulip bulb financial bubble
C) is the favoring of reserve accounting
D) is the Spanish occupation

Question 41

General purchasing power accounting

A) has continued use in the United States
B) has continued use in Britain
C) has switched to replacement value accounting
D) has been in use in South America

Question 42

Controversy remains for price change accounting with respect to
I).the gearing adjustment
II).the treatment of gains and losses on monetary items

A) only I
B) only II
C) I and II
D) neither I or II