Financial Reporting Flashcards

Under IFRS, how should biological assets be measured according to IAS 41 Agriculture?

Answer: At fair value less costs to sell, with changes recognized in profit or loss

IAS 41 requires biological assets to be measured at fair value less costs to sell from initial recognition through harvest. Changes in fair value less costs to sell are recognized in profit or loss for the period.

A company reports under IFRS and has a foreign subsidiary. Under IAS 21, how are translation differences arising from consolidation treated?

Answer: Recognized in other comprehensive income and accumulated in a separate component of equity

When translating a foreign operation's financial statements for consolidation, exchange differences are recognized in OCI and accumulated in a separate component of equity (foreign currency translation reserve). They are reclassified to profit or loss on disposal of the foreign operation.

Under IFRS 5, when should a non-current asset be classified as held for sale?

Answer: When its carrying amount will be recovered principally through a sale transaction rather than continuing use, and the sale is highly probable

IFRS 5 requires classification as held for sale when the asset is available for immediate sale in its present condition and the sale is highly probable (committed plan, active marketing, expected completion within 12 months).

What is the correct treatment of research and development costs for a pharmaceutical company under IFRS?

Answer: Research costs are expensed; development costs are capitalized when IAS 38 criteria are met

Under IAS 38, research phase expenditures must be expensed as incurred because future economic benefits cannot be demonstrated. Development expenditures can be capitalized only when all six recognition criteria are satisfied.

Under IAS 33 Earnings Per Share, how is diluted EPS calculated?

Answer: Net income adjusted for dilutive securities divided by weighted average shares plus potential dilutive shares

Diluted EPS adjusts both the numerator (adding back effects of dilutive securities like convertible bond interest) and the denominator (adding potential shares from options, warrants, convertibles) to show the worst-case dilution effect.

A company discovers a material error in prior year financial statements. Under IAS 8, how should this be corrected?

Answer: By restating the prior period comparative figures retrospectively

IAS 8 requires material prior period errors to be corrected retrospectively by restating the comparative amounts for the prior period(s) in which the error occurred, or adjusting opening balances if the error occurred before the earliest period presented.