IFRS Financial Analysis and Reporting 3

Question 1

Under IAS 2, which cost formula is prohibited for measuring inventory under IFRS?

Accepted Answer

LIFO (Last-In, First-Out)

Answer

IAS 2 explicitly prohibits the use of LIFO because it often results in older, less relevant costs being reported on the statement of financial position.

Question 2

Which financial statement provides information about changes in an entity's equity during a reporting period?

Accepted Answer

Statement of changes in equity

Answer

The statement of changes in equity reconciles the opening and closing equity balances, showing transactions with owners and total comprehensive income.

Question 3

A firm has a debt-to-equity ratio of 1.5. What is its debt-to-assets ratio?

Accepted Answer

60%

Answer

If D/E = 1.5, then for every $1 of equity there is $1.50 of debt, so D/A = 1.5 / (1 + 1.5) = 1.5 / 2.5 = 60%.

Question 4

Under IAS 38, research costs should be:

Accepted Answer

Expensed as incurred

Answer

IAS 38 requires research costs to be expensed as incurred because it is not possible to demonstrate at the research stage that an intangible asset will generate probable future economic benefits.

Question 5

The interest coverage ratio is best described as:

Accepted Answer

EBIT divided by interest expense

Answer

The interest coverage ratio (EBIT / interest expense) measures how many times operating earnings can cover interest obligations.

(IFRS) International Financial Reporting Standards Practice Test

(IFRS) International Financial Reporting Standards Practice Test

IFRS Financial Analysis and Reporting 3