CBS International Accounting Standards 2 — Questions and Answers
Question 1: Under IAS 36, which is the correct definition of 'recoverable amount' for an asset?
- The asset's historical cost minus accumulated depreciation
- The higher of fair value less costs of disposal and value in use (Correct answer)
- The lower of fair value less costs of disposal and value in use
- The present value of future cash flows only
Correct answer: The higher of fair value less costs of disposal and value in use
IAS 36 defines recoverable amount as the higher of an asset's fair value less costs of disposal and its value in use.
Question 2: Which IAS standard governs the accounting treatment for employee benefits such as pensions and post-employment benefits?
- IAS 16
- IAS 19 (Correct answer)
- IAS 26
- IAS 37
Correct answer: IAS 19
IAS 19 Employee Benefits covers short-term benefits, post-employment benefits (including defined benefit and defined contribution plans), and other long-term employee benefits.
Question 3: Under IFRS 9, how are financial assets classified?
- Held-to-maturity, available-for-sale, and trading
- Amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL) (Correct answer)
- Current and non-current only
- Level 1, Level 2, and Level 3 hierarchy
Correct answer: Amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL)
IFRS 9 replaced IAS 39 and classifies financial assets into three categories based on business model and cash flow characteristics.
Question 4: IAS 7 requires cash flow statements to present cash flows under which three categories?
- Operating, investing, and financing activities (Correct answer)
- Revenue, expense, and capital activities
- Current, non-current, and equity activities
- Direct, indirect, and hybrid activities
Correct answer: Operating, investing, and financing activities
IAS 7 mandates classification of cash flows into operating, investing, and financing activities to help users assess liquidity and financial flexibility.
Question 5: A budget specialist working on international projects needs to understand IAS 21. What does IAS 21 address?
- Accounting for government grants
- Effects of changes in foreign exchange rates (Correct answer)
- Impairment of assets
- Accounting for income taxes
Correct answer: Effects of changes in foreign exchange rates
IAS 21 The Effects of Changes in Foreign Exchange Rates prescribes how to include foreign currency transactions and foreign operations in financial statements.
Question 6: Under IAS 2, which cost flow assumption is explicitly prohibited?
- Weighted average cost
- First-in, first-out (FIFO)
- Last-in, first-out (LIFO) (Correct answer)
- Specific identification
Correct answer: Last-in, first-out (LIFO)
IAS 2 Inventories prohibits the use of the LIFO method, unlike US GAAP which permits it.
Question 7: Under IAS 37, a provision must be recognized when which set of conditions is met?
- A present obligation exists, outflow of economic resources is probable, and a reliable estimate can be made (Correct answer)
- A possible obligation exists and future costs are determinable
- A legal obligation is confirmed and the amount is fixed
- Management decides to set aside funds for a future contingency
Correct answer: A present obligation exists, outflow of economic resources is probable, and a reliable estimate can be made
IAS 37 requires all three conditions—present obligation, probable outflow, and reliable estimate—before a provision may be recognized.
CBS International Accounting Standards 2
Under IAS 36, which is the correct definition of 'recoverable amount' for an asset?