IFRS Operations and Process Management 2 — Questions and Answers
Question 1: Under IAS 2, which cost formula is prohibited for measuring inventories?
- First-in, first-out (FIFO)
- Weighted average cost
- Last-in, first-out (LIFO) (Correct answer)
- Specific identification
Correct answer: Last-in, first-out (LIFO)
IAS 2 explicitly prohibits the LIFO cost formula for measuring inventories.
Question 2: A manufacturer incurs abnormal waste during production. Under IAS 2, how should abnormal waste costs be treated?
- Included in inventory cost
- Expensed in the period incurred (Correct answer)
- Capitalized as a production asset
- Deferred to the next reporting period
Correct answer: Expensed in the period incurred
IAS 2 requires abnormal amounts of wasted materials, labor, or other production costs to be expensed as incurred, not included in inventory cost.
Question 3: Under IFRS 15, when a contract contains a significant financing component, how should revenue be recognized?
- At the total undiscounted contract price
- At the cash selling price adjusted for the time value of money (Correct answer)
- At the higher of cash price or present value
- At the nominal contract amount less estimated returns
Correct answer: At the cash selling price adjusted for the time value of money
IFRS 15 requires revenue to be recognized at the cash selling price (present value), with the financing component recognized as interest income or expense separately.
Question 4: Which standard governs the accounting for service concession arrangements where a private operator provides public services?
- IAS 16
- IFRIC 12 (Correct answer)
- IFRS 16
- IAS 38
Correct answer: IFRIC 12
IFRIC 12 Service Concession Arrangements addresses how operators account for public-to-private service concession arrangements.
Question 5: A company operates a loyalty points program. Under IFRS 15, loyalty points awarded at the time of sale are accounted for as:
- A marketing expense at the point of award
- A separate performance obligation allocated part of the transaction price (Correct answer)
- A contingent liability until points are redeemed
- A discount reducing the original sale revenue
Correct answer: A separate performance obligation allocated part of the transaction price
Under IFRS 15, loyalty points represent a separate performance obligation, and a portion of the transaction price is allocated and deferred until points are redeemed or expire.
Question 6: Under IAS 37, a provision for restructuring costs may only be recognized when:
- Management has decided internally to restructure
- A detailed formal plan exists and a valid expectation has been raised in those affected (Correct answer)
- Board approval has been obtained
- The restructuring has commenced and costs are being incurred
Correct answer: A detailed formal plan exists and a valid expectation has been raised in those affected
IAS 37 requires both a detailed formal plan and a valid expectation raised in affected parties (e.g., announcement) before a restructuring provision can be recognized.
Question 7: Under IFRS 16, a lessee's operating lease treated as a finance lease on adoption will initially recognize:
- Only a lease liability at the present value of future payments
- A right-of-use asset and a lease liability (Correct answer)
- An intangible asset and deferred revenue
- A finance charge and operating expense
Correct answer: A right-of-use asset and a lease liability
IFRS 16 requires lessees to recognize both a right-of-use (ROU) asset and a corresponding lease liability at the commencement date for virtually all leases.
IFRS Operations and Process Management 2
Under IAS 2, which cost formula is prohibited for measuring inventories?