CPA CFE Financial Reporting 1

Question 1

Under IFRS, which method is required for reporting cash flows from operating activities when using the indirect method?

Accepted Answer

Adjusting net income for non-cash items and changes in working capital

Answer

The indirect method starts with net income and adjusts for non-cash items (such as depreciation and amortization) and changes in working capital accounts to arrive at cash from operating activities.

Question 2

A company acquires 80% of a subsidiary. Under IFRS 3 Business Combinations, how should non-controlling interest (NCI) be measured at acquisition?

Accepted Answer

Either at fair value (full goodwill) or proportionate share of net assets (partial goodwill)

Answer

IFRS 3 permits an accounting policy choice on a transaction-by-transaction basis to measure NCI either at fair value (full goodwill method) or at the NCI's proportionate share of the acquiree's identifiable net assets (partial goodwill method).

Question 3

Which of the following is classified as an investment property under IAS 40?

Accepted Answer

Land held for long-term capital appreciation

Answer

IAS 40 defines investment property as property held to earn rentals or for capital appreciation or both. Land held for long-term capital appreciation meets this definition, whereas owner-occupied property does not.

Question 4

Under IFRS 15 Revenue from Contracts with Customers, when should revenue be recognized?

Accepted Answer

When the entity satisfies a performance obligation by transferring a promised good or service

Answer

IFRS 15 requires revenue to be recognized when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer, which occurs when the customer obtains control of that asset.

Question 5

A company enters into a lease agreement for office space for 5 years. Under IFRS 16 Leases, how should the lessee account for this lease?

Accepted Answer

Recognize a right-of-use asset and a corresponding lease liability on the balance sheet

Answer

IFRS 16 requires lessees to recognize a right-of-use asset and a lease liability for virtually all leases (with limited exceptions for short-term leases and leases of low-value assets), eliminating the previous operating/finance lease distinction for lessees.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Financial Reporting 1