IFRS Financial Analysis and Reporting 2

Question 1

Under IAS 7, which method of presenting operating cash flows is encouraged but not required?

Accepted Answer

Direct method

Answer

IAS 7 encourages the direct method because it provides information useful in estimating future cash flows, though the indirect method is widely used in practice.

Question 2

An entity reports EBITDA of $500,000 and depreciation of $80,000. What is EBIT?

Accepted Answer

$420,000

Answer

EBIT = EBITDA minus depreciation and amortization, so $500,000 - $80,000 = $420,000.

Question 3

Under IFRS, how is a change in accounting estimate treated?

Accepted Answer

Prospectively in current and future periods

Answer

IAS 8 requires changes in accounting estimates to be recognized prospectively, affecting the current period and future periods as applicable.

Question 4

Which ratio measures a company's ability to pay short-term obligations using only its most liquid assets?

Accepted Answer

Cash ratio

Answer

The cash ratio (cash and cash equivalents divided by current liabilities) uses only the most liquid assets, making it the most conservative liquidity measure.

Question 5

Under IAS 36, which of the following is NOT an external indicator of possible impairment?

Accepted Answer

Physical damage to an asset

Answer

Physical damage to an asset is an internal indicator of impairment, while market value decline, technology changes, and interest rate increases are external indicators.

(IFRS) International Financial Reporting Standards Practice Test

(IFRS) International Financial Reporting Standards Practice Test

IFRS Financial Analysis and Reporting 2