CBS International Accounting Standards 3 — Questions and Answers
Question 1: Under IFRS 16, how must a lessee account for most leases on its balance sheet?
- Recognize only an operating lease expense on the income statement
- Recognize a right-of-use asset and a corresponding lease liability (Correct answer)
- Disclose the lease in the notes only, with no balance sheet impact
- Capitalize only leases longer than 10 years
Correct answer: Recognize a right-of-use asset and a corresponding lease liability
IFRS 16 eliminated the distinction between operating and finance leases for lessees, requiring recognition of a right-of-use asset and lease liability for nearly all leases.
Question 2: IAS 38 deals with intangible assets. Under IAS 38, which of the following can generally be capitalized?
- Internally generated goodwill
- Research phase expenditures
- Development phase expenditures meeting specific criteria (Correct answer)
- Brand names developed internally
Correct answer: Development phase expenditures meeting specific criteria
IAS 38 allows capitalization of development costs when technical feasibility, intention to complete, ability to use/sell, and other criteria are met, but research costs are always expensed.
Question 3: Which IFRS standard establishes principles for recognizing revenue from contracts with customers?
- IAS 18
- IAS 11
- IFRS 15 (Correct answer)
- IFRS 9
Correct answer: IFRS 15
IFRS 15 Revenue from Contracts with Customers replaced IAS 18 and IAS 11, introducing a five-step model for revenue recognition.
Question 4: A company has a defined benefit pension plan. Under IAS 19, which method must be used to measure the defined benefit obligation?
- Unit credit method
- Projected unit credit method (Correct answer)
- Aggregate cost method
- Entry age normal method
Correct answer: Projected unit credit method
IAS 19 requires use of the projected unit credit method to measure the defined benefit obligation, attributing benefits to periods of employee service.
Question 5: Under IAS 12, a deferred tax liability arises when:
- An asset's tax base exceeds its carrying amount
- An asset's carrying amount exceeds its tax base (Correct answer)
- Tax payable in the current period exceeds tax expense
- A tax loss carryforward is available
Correct answer: An asset's carrying amount exceeds its tax base
A deferred tax liability arises from a taxable temporary difference when carrying amount exceeds tax base, indicating future taxable income when the asset is recovered.
Question 6: IFRS 3 Business Combinations requires the use of which method for accounting for acquisitions?
- Pooling of interests method
- Equity method
- Acquisition method (Correct answer)
- Proportionate consolidation method
Correct answer: Acquisition method
IFRS 3 requires the acquisition method (previously called the purchase method), identifying the acquirer and measuring identifiable assets and liabilities at fair value.
Question 7: Under IAS 40, investment property may be measured after initial recognition using which model(s)?
- Only the cost model
- Only the fair value model
- Either the fair value model or the cost model, with disclosure of fair value under the cost model (Correct answer)
- The lower of cost or fair value
Correct answer: Either the fair value model or the cost model, with disclosure of fair value under the cost model
IAS 40 permits entities to choose either the fair value model or cost model for investment property, but if the cost model is chosen, fair value must still be disclosed.
CBS International Accounting Standards 3
Under IFRS 16, how must a lessee account for most leases on its balance sheet?