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

IAS 37 requires recognition of a provision when there is a present obligation (legal or constructive) from a past event, it is probable that an outflow of resources will be required, and a reliable estimate of the amount can be made.

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

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

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

IAS 32 requires a compound financial instrument like a convertible bond to be split into its liability component (obligation to make cash payments) and equity component (option for the holder to convert into shares). This is known as split accounting.

Question 4

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

Accepted Answer

Last-in, first-out (LIFO)

Answer

IFRS (IAS 2) prohibits the use of LIFO as a cost formula for inventories. The permitted methods are FIFO, weighted average cost, and specific identification (for items that are not ordinarily interchangeable).

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

IAS 20 allows two methods for presenting government grants related to assets: setting up the grant as deferred income recognized over the asset's useful life, or deducting the grant from the carrying amount of the asset.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Financial Reporting 2