Certificate in International Financial Reporting Intangibles, Tax, and Cash Flow 1 — Questions and Answers
Question 1: Under IAS 38, an intangible asset can be recognised only if:
- It is identifiable, controlled by the entity, and expected to generate probable future economic benefits (Correct answer)
- It is separable from the entity
- It has a finite useful life
- It was purchased externally
Correct answer: It is identifiable, controlled by the entity, and expected to generate probable future economic benefits
IAS 38 requires identifiability, control, and probable future benefits for intangible asset recognition.
Question 2: Under IAS 38, internally generated goodwill is:
- Not recognised as an asset (Correct answer)
- Capitalised when it can be measured reliably
- Recognised at cost
- Amortised over 10 years
Correct answer: Not recognised as an asset
IAS 38 prohibits recognition of internally generated goodwill because it cannot be reliably measured.
Question 3: Under IAS 38, research costs are:
- Expensed as incurred (Correct answer)
- Capitalised when technical feasibility is established
- Amortised over five years
- Capitalised if management intends to complete the project
Correct answer: Expensed as incurred
IAS 38 requires research phase costs to be expensed because they do not yet meet the asset recognition criteria.
Question 4: Under IAS 12, a deferred tax liability arises when:
- The carrying amount of an asset exceeds its tax base (Correct answer)
- The tax base of an asset exceeds its carrying amount
- A temporary difference reverses
- Tax losses are carried forward
Correct answer: The carrying amount of an asset exceeds its tax base
A taxable temporary difference—carrying amount exceeds tax base—creates a deferred tax liability.
Question 5: Under IAS 12, deferred tax assets are recognised only when:
- It is probable that sufficient future taxable profit will be available to utilise the temporary difference (Correct answer)
- The deductible difference will reverse within one year
- Management approves the recognition
- The entity has no history of tax losses
Correct answer: It is probable that sufficient future taxable profit will be available to utilise the temporary difference
IAS 12 requires probability of future taxable profits against which the deductible difference can be offset.
Question 6: Under IAS 7, which of the following is classified as a financing activity in the cash flow statement?
- Proceeds from issuing shares (Correct answer)
- Interest received on investments
- Dividends received from associates
- Taxes paid
Correct answer: Proceeds from issuing shares
IAS 7 classifies proceeds from equity and borrowing transactions as financing activities.
Certificate in International Financial Reporting Intangibles, Tax, and Cash Flow 1
Under IAS 38, an intangible asset can be recognised only if: