CPA CFE Financial Reporting 2

Question 1

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when should a provision be recognized?

Accepted Answer

When a present obligation exists, an outflow is probable, and a reliable estimate can be made

Answer

When a future event is possible but not probable

Answer

When management decides it is prudent to set aside funds

Answer

Only when a court order requires payment

Question 2

Which of the following best describes the concept of 'fair value' under IFRS 13?

Accepted Answer

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

Answer

The amount an asset could be sold for in a forced liquidation

Answer

The replacement cost of the asset in its current condition

Answer

The present value of expected future cash flows using a risk-free rate

Question 3

A company issues convertible bonds. Under IAS 32, how should the instrument be classified?

Accepted Answer

Split into a liability component and an equity component

Answer

Entirely as a financial liability

Answer

Entirely as equity

Answer

As a contingent liability until conversion occurs

Question 4

Under IAS 2 Inventories, which cost formula is NOT permitted under IFRS?

Accepted Answer

Last-in, first-out (LIFO)

Answer

First-in, first-out (FIFO)

Answer

Weighted average cost

Answer

Specific identification

Question 5

How should government grants related to assets be presented under IAS 20?

Accepted Answer

Either as deferred income or by deducting the grant from the carrying amount of the asset

Answer

Only as revenue in the income statement

Answer

As a direct credit to retained earnings

Answer

As a reduction in the cost of goods sold

Question 6

Under IFRS 9, when should an entity recognize expected credit losses on a financial asset measured at amortized cost?

Accepted Answer

At initial recognition, using a 12-month expected credit loss model, moving to lifetime ECL if credit risk increases significantly

Answer

Only when a loss event has occurred (incurred loss model)

Answer

Only at the end of the reporting period if the asset is past due

Answer

When the counterparty declares bankruptcy