IFRS Data Analysis and Interpretation 3

Question 1

Under IFRS 15, when analyzing revenue recognition for a long-term construction contract, an analyst determines the entity uses the output method based on surveys of work completed. Compared to the input (cost incurred) method, the output method is more likely to:

Accepted Answer

Reflect the actual transfer of control to the customer more faithfully in some circumstances

Answer

The output method measures progress based on direct observation of value transferred to the customer, which can more faithfully depict the actual transfer of control in certain contract types.

Question 2

An analyst reviewing IAS 36 disclosures notes that an entity uses a post-tax discount rate to calculate value in use. Under strict IAS 36 application, what is the correct approach?

Accepted Answer

Pre-tax cash flows discounted at a pre-tax rate that reflects current market assessments

Answer

IAS 36 requires that value in use be calculated using pre-tax cash flows discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and asset-specific risks.

Question 3

When interpreting IFRS financial instruments disclosures under IFRS 7, a sensitivity analysis showing that a 100 basis point increase in interest rates would reduce equity by $5 million most likely relates to:

Accepted Answer

Fair value changes on financial assets classified at fair value through OCI

Answer

A rate increase reducing equity (not profit) indicates fair value changes flowing through OCI, which is characteristic of debt instruments classified as FVOCI under IFRS 9.

Question 4

A company applies IFRS 9 and has a portfolio of trade receivables. The analyst observes the loss allowance has increased significantly despite stable revenues. Under the expected credit loss (ECL) model, this most likely indicates:

Accepted Answer

A significant increase in credit risk causing Stage 1 assets to migrate to Stage 2 or 3

Answer

A significant loss allowance increase despite stable revenues most likely reflects credit deterioration causing receivables to migrate from Stage 1 (12-month ECL) to Stage 2 or 3 (lifetime ECL), dramatically increasing provisions.

Question 5

Under IAS 19, an analyst compares two companies' pension disclosures and finds Company A uses a higher discount rate than Company B. Holding all other assumptions constant, Company A will report:

Accepted Answer

A lower defined benefit obligation and lower current service cost

Answer

A higher discount rate reduces the present value of the defined benefit obligation and current service cost, since future cash flows are discounted more heavily.

(IFRS) International Financial Reporting Standards Practice Test

(IFRS) International Financial Reporting Standards Practice Test

IFRS Data Analysis and Interpretation 3