Certificate in International Financial Reporting Revenue, Inventories, and PPE 2 — Questions and Answers
Question 1: Under IFRS 15, a variable consideration (e.g., performance bonus) should be included in the transaction price only to the extent that it is:
- Highly probable a significant revenue reversal will not occur (Correct answer)
- Certain to be received
- Approved by the customer in writing
- Included in the signed contract
Correct answer: Highly probable a significant revenue reversal will not occur
IFRS 15 uses the constraint that variable amounts are included only when a reversal is highly improbable.
Question 2: Under IAS 16, how is a revaluation surplus treated when an asset is subsequently depreciated?
- Transferred from revaluation surplus to retained earnings over the asset's useful life (Correct answer)
- Recognised in profit or loss
- Kept in revaluation surplus permanently
- Written off immediately against profit or loss
Correct answer: Transferred from revaluation surplus to retained earnings over the asset's useful life
The excess depreciation on the revalued amount is transferred from OCI/revaluation surplus to retained earnings.
Question 3: Net realisable value (NRV) under IAS 2 is defined as:
- Estimated selling price less estimated costs of completion and selling costs (Correct answer)
- Current replacement cost
- Fair value less costs to sell
- Carrying amount of inventory
Correct answer: Estimated selling price less estimated costs of completion and selling costs
NRV is the expected selling price in ordinary business less costs to complete and sell the item.
Question 4: Under IAS 16, what is the depreciable amount of an asset?
- Cost or revalued amount less residual value (Correct answer)
- Cost only
- Fair value at the reporting date
- Cost less accumulated impairment
Correct answer: Cost or revalued amount less residual value
The depreciable amount is the cost (or revalued amount) minus the estimated residual value.
Question 5: Under IFRS 15, when should revenue be recognised over time rather than at a point in time?
- When the customer simultaneously receives and consumes the benefits as the entity performs (Correct answer)
- When the contract is long-term
- When payment is received in instalments
- When the entity retains significant risks
Correct answer: When the customer simultaneously receives and consumes the benefits as the entity performs
Over-time recognition applies when one of three criteria is met, including simultaneous consumption of benefits.
Question 6: Under IAS 2, borrowing costs are generally:
- Excluded from inventory cost and expensed (Correct answer)
- Capitalised into inventory cost
- Offset against revenue
- Treated as part of NRV adjustment
Correct answer: Excluded from inventory cost and expensed
IAS 2 generally excludes borrowing costs from inventory cost; they are expensed as incurred.
Certificate in International Financial Reporting Revenue, Inventories, and PPE 2
Under IFRS 15, a variable consideration (e.g., performance bonus) should be included in the transaction price only to the extent that it is: