IFA Financial Reporting & Accounting Standards 2 — Questions and Answers
Question 1: Under IAS 36, an impairment loss is recognized when an asset's carrying amount exceeds its:
- Fair value less costs to sell
- Value in use
- Recoverable amount (Correct answer)
- Net realizable value
Correct answer: Recoverable amount
IAS 36 requires an impairment loss when carrying amount exceeds the recoverable amount, which is the higher of fair value less costs to sell and value in use.
Question 2: Which financial statement shows changes in equity between two reporting dates?
- Statement of financial position
- Statement of profit or loss
- Statement of changes in equity (Correct answer)
- Statement of cash flows
Correct answer: Statement of changes in equity
The statement of changes in equity reconciles the opening and closing equity balances including profit, dividends, and other comprehensive income.
Question 3: Under IFRS 15, revenue is recognized when or as a performance obligation is:
- Invoiced to the customer
- Satisfied (Correct answer)
- Contracted
- Collected in cash
Correct answer: Satisfied
IFRS 15's core principle is that revenue is recognized when (or as) a performance obligation is satisfied by transferring a promised good or service to a customer.
Question 4: A company receives a government grant to purchase equipment. Under IAS 20, this grant may be presented as:
- Deferred income or deducted from the asset's carrying amount (Correct answer)
- Equity only
- Revenue immediately
- Liability permanently
Correct answer: Deferred income or deducted from the asset's carrying amount
IAS 20 allows grants related to assets to be presented either as deferred income or by deducting the grant from the asset's carrying amount.
Question 5: Under IAS 2, which inventory cost formula is NOT permitted?
- FIFO
- Weighted average cost
- LIFO (Correct answer)
- Specific identification
Correct answer: LIFO
IAS 2 prohibits the LIFO (Last-In, First-Out) cost formula; only FIFO, weighted average, and specific identification are permitted.
Question 6: Which of the following is classified as an investing activity in the statement of cash flows under IAS 7?
- Payment of dividends
- Purchase of property, plant and equipment (Correct answer)
- Repayment of a bank loan
- Payment of wages
Correct answer: Purchase of property, plant and equipment
Purchases of property, plant and equipment represent cash outflows from investing activities under IAS 7.
Question 7: Under IAS 37, a provision should be recognized when:
- A possible obligation exists that may be confirmed by future events
- A present obligation exists, an outflow of resources is probable, and a reliable estimate can be made (Correct answer)
- Management decides to set aside funds for future costs
- A contingent liability is disclosed in the notes
Correct answer: A present obligation exists, an outflow of resources is probable, and a reliable estimate can be made
IAS 37 requires recognition of a provision only when all three criteria are met: present obligation, probable outflow, and reliable estimate.
IFA Financial Reporting & Accounting Standards 2
Under IAS 36, an impairment loss is recognized when an asset's carrying amount exceeds its: