Question 1

The following inventory information was taken from the records of a foreign corporation whose stock is listed on an exchange in the U.S.  The following inventory information was taken from the records of a foreign corporation whose stock is listed on an exchange in the U.S. How will income under the U.S. GAAP compare to income the company reported under IFRS after reconciliation?

Accepted Answer

A

Question 2

What should be the basis for choosing depreciation methods for fixed assets under IAS 16 (Property, Plant, and Equipment)?

Accepted Answer

IAS 16 requires that the choice of depreciation method should depend on the pattern of economic benefits expected to be derived from the asset over its useful life. The useful life should be estimated based on factors such as expected usage, wear and tear, and technological obsolescence. The method chosen should reflect the expected pattern of consumption of the expected economic benefits, such as the straight-line method, reducing balance method or units-of-production method. Tax minimization or profit maximization should not be the basis for choosing a depreciation method under IAS 16.

Question 3

As defined by IAS 38, how are intangible assets unlike other assets?

Accepted Answer

Intangible assets are nonmonetary in nature, lack physical substance, and are not easily quantifiable or measurable as compared to other tangible assets.

Question 4

Which of the following inventory valuation methods, commonly used under the U.S. GAAP, is NOT allowed under IAS 2 (Inventories)?

Accepted Answer

LIFO (Last-In, First-Out) is not allowed under IAS 2, while FIFO (First-In, First-Out), Weighted average, and Retail inventory method are all allowed.

Question 5

What types of differences can cause issues between International Financial Reporting Standards and U.S. GAAP?

Accepted Answer

All of the above factors (measurement, alternatives available and disclosure) may differ between IFRS and U.S. GAAP, causing discrepancies between the financial reports prepared under both standards. For instance, IFRS provides for a principles-based approach to accounting, while GAAP adopts a rules-based approach, leading to differences in measuring assets and liabilities, categorizing expenses, and recognizing revenue. Similarly, IFRS allows for more alternatives in accounting for certain transactions, like leases, while GAAP has more prescriptive rules. Lastly, disclosures required by both standards may also vary, leading to presentation differences in financial statements.

Question 6

Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling price subsequently increases?

Accepted Answer

The inventory write-down should be reversed to bring it in line with the new net realizable value. This is in accordance with IAS 2 which requires the reversal of inventory write-downs if the reason for the write-down no longer exists, such as an increase in selling price. This will result in an increase in inventory value and a corresponding increase in profit.

Question 7

IAS 38 states that an intangible asset is deemed to have an indefinite life when there is no foreseeable end to the expected cash flows the asset is likely to generate. What is the impact of an indefinite life on amortization of the intangible asset's cost under IAS 38?

Accepted Answer

If an intangible asset is deemed to have an indefinite life, no amortization is taken as long as the life is considered indefinite. However, the asset should be reviewed annually for impairment.

Question 8

Chien Bleu Ltd. purchased a building in 2009 for €10,000,000 and as of December 31, 2015 had, recorded accumulated depreciation on the building of €3,000,000. On December 31, 2015, the company conducted its first revaluation when the fair value was €12,000,000. According to IAS 16, what account should be credited for €5,000,000?

Accepted Answer

According to IAS 16, any increase in the value of the revalued asset above its carrying amount should be credited to a separate component of equity called "Revaluation Surplus." In this case, the fair value of the building is €12,000,000, which is €2,000,000 more than its carrying amount of €10,000,000 after deducting accumulated depreciation of €3,000,000. Therefore, €2,000,000 should be credited to Revaluation Surplus-Building.

Question 9

If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:

Accepted Answer

If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement, it must update the valuation so that the balance sheet represents fair value on the balance sheet date. However, there is no requirement for annual revaluations or for appraisals to be performed by an official of the IASB, and the depreciated replacement cost is not necessarily the fair value of the fixed asset.

Question 10

The following inventory information was taken from the records of GlobeKom Ltd.:  Under U.S. GAAP, what should the balance sheet report for Inventory?

Accepted Answer

Based on the given information, the balance sheet should report inventory at the lower of cost or market value. The cost of the inventory is $9,500, which is higher than the market value of $8,500. Therefore, the balance sheet should report inventory at $8,500.

Question 11

The following inventory information was taken from the records of Kleinfeld Inc.:  Under U.S. GAAP, what should the balance sheet report for Inventory?

Accepted Answer

The answer of The following inventory information was taken from...

Question 12

According to IAS 16, a decrease in the carrying amount of a fixed asset that is identified on an asset's first revaluation should be recorded as:

Accepted Answer

A decrease in the carrying amount of a fixed asset on its first revaluation should be recognized as an expense in the income statement, unless it reverses a previous revaluation surplus for the same asset.

Question 13

According to IAS 16 (Property, Plant and Equipment), what is the term used to indicate the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction?

Accepted Answer

The term used is "fair value." IAS 16 defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."

Question 14

In what way does IAS 16 (Property, Plant, and Equipment) differ from U.S. GAAP concerning fixed asset measurement subsequent to initial recognition?

Accepted Answer

IAS 16 permits the revaluation of fixed assets to their fair value, which can result in an increase in the carrying amount of the asset. This is a significant difference from U.S. GAAP, which generally does not allow for the upward revaluation of fixed assets.

Question 15

The following inventory information was taken from the records of Kleinfeld Inc.:  Assume that subsequent to your adjustment the expected selling price increases to $13,000 (all the rest of the facts are the same). What adjustment to inventory should be made under IAS 2 after this event?

Accepted Answer

The answer of The following inventory information was taken from...

Question 16

Which of the following items should be included in the cost of property, plant, and equipment under IAS 16?

Accepted Answer

According to IAS 16, the cost of property, plant, and equipment includes all costs directly attributable to getting the asset to the proper location, import duties and taxes, and estimated costs of removing the asset. Therefore, all of these should be considered part of the cost of the asset.

Question 17

Which of the following is generally true about the differences between U.S. GAAP and IFRS?

Accepted Answer

U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based. While both sets of standards have their own unique characteristics, this is a key difference between the two. It is important to note that there are ongoing efforts by standard setters to converge and harmonize the two sets of standards.

Question 18

The following inventory information was taken from the records of Kleinfeld Inc.:  Under IAS 2, what should the balance sheet report for Inventory?

Accepted Answer

The answer of The following inventory information was taken from...

Question 19

The following inventory information was taken from the records of GlobeKom Ltd.:  Under IAS 2, what should the balance sheet report for Inventory?

Accepted Answer

The balance sheet should report inventory at the lower of cost and net realizable value. Based on the information provided, the cost of inventory is $9,500 (beginning inventory of $8,500 + purchases of $12,000 - cost of goods sold of $11,000). Therefore, the balance sheet should report inventory at $9,500.

Question 20

Blanco Chemical Company spent €15,000,000 in development efforts to create a fertilizer for which it was able to obtain a patent; however, the expected distribution costs make it infeasible to market the chemical in the foreseeable future. According to IAS 38 (Intangible Assets), how should Blanco Chemical Company record the €15,000,000?

Accepted Answer

According to IAS 38, if an intangible asset generated internally, such as a patent, is not expected to generate future economic benefits due to infeasibility of marketing, the expenditure on its development should be recognized as an expense when incurred. Therefore, the €15,000,000 spent on development efforts that cannot be recovered through sales should be recorded as a "Development Expense" on the Income Statement.

Quiz 4: International Financial Reporting Standards: Part I

What should be the basis for choosing depreciation methods for fixed assets under IAS 16 (Property, Plant, and Equipment) ?

As defined by IAS 38, how are intangible assets unlike other assets?

Which of the following inventory valuation methods, commonly used under the U.S. GAAP, is NOT allowed under IAS 2 (Inventories) ?

What types of differences can cause issues between International Financial Reporting Standards and U.S. GAAP?

Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling price subsequently increases?

IAS 38 states that an intangible asset is deemed to have an indefinite life when there is no foreseeable end to the expected cash flows the asset is likely to generate. What is the impact of an indefinite life on amortization of the intangible asset's cost under IAS 38?

If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:

The following inventory information was taken from the records of GlobeKom Ltd.: Under U.S. GAAP, what should the balance sheet report for Inventory?

The following inventory information was taken from the records of Kleinfeld Inc.: Under U.S. GAAP, what should the balance sheet report for Inventory?

According to IAS 16, a decrease in the carrying amount of a fixed asset that is identified on an asset's first revaluation should be recorded as:

According to IAS 16 (Property, Plant and Equipment) , what is the term used to indicate the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction?

In what way does IAS 16 (Property, Plant, and Equipment) differ from U.S. GAAP concerning fixed asset measurement subsequent to initial recognition?

The following inventory information was taken from the records of Kleinfeld Inc.: Assume that subsequent to your adjustment the expected selling price increases to $13,000 (all the rest of the facts are the same) . What adjustment to inventory should be made under IAS 2 after this event?

Which of the following items should be included in the cost of property, plant, and equipment under IAS 16?

Which of the following is generally true about the differences between U.S. GAAP and IFRS?

The following inventory information was taken from the records of Kleinfeld Inc.: Under IAS 2, what should the balance sheet report for Inventory?

The following inventory information was taken from the records of GlobeKom Ltd.: Under IAS 2, what should the balance sheet report for Inventory?