IFRS Standards 2 — Questions and Answers
Question 1: Under IFRS 16, how must a lessee classify lease payments for a finance lease on the statement of cash flows?
- Entirely as operating activities
- Principal as financing; interest as financing or operating (Correct answer)
- Entirely as investing activities
- Principal as investing; interest as operating
Correct answer: Principal as financing; interest as financing or operating
IFRS 16 requires the principal repayment portion to be classified as financing activities, while interest paid may be classified as financing or operating activities per IAS 7 accounting policy choice.
Question 2: IFRS 15 uses a five-step model for revenue recognition. Which step involves determining the standalone selling prices of performance obligations?
- Step 2 – Identify performance obligations
- Step 3 – Determine the transaction price
- Step 4 – Allocate the transaction price (Correct answer)
- Step 5 – Recognize revenue
Correct answer: Step 4 – Allocate the transaction price
Step 4 of the IFRS 15 model allocates the transaction price to each performance obligation based on relative standalone selling prices.
Question 3: Which IFRS standard governs the accounting for government grants and disclosure of government assistance?
- IAS 20 (Correct answer)
- IAS 37
- IFRS 9
- IAS 41
Correct answer: IAS 20
IAS 20 prescribes the accounting for government grants and requires disclosure of government assistance that has benefited the entity.
Question 4: Under IAS 36, which of the following is NOT an external indicator that an asset may be impaired?
- Significant decline in market value
- Adverse changes in technology or market
- Physical damage to the asset (Correct answer)
- Asset's carrying amount exceeds its net assets in a takeover bid
Correct answer: Physical damage to the asset
Physical damage to an asset is an internal indicator of impairment under IAS 36, not an external indicator.
Question 5: IFRS 3 requires acquired identifiable intangible assets to be recognized separately from goodwill if they meet certain criteria. Which criterion is NOT required?
- The asset is separable or arises from contractual rights
- The fair value can be measured reliably
- The asset is controlled by the acquirer
- The asset has an indefinite useful life (Correct answer)
Correct answer: The asset has an indefinite useful life
IFRS 3 does not require an intangible to have an indefinite life; both finite and indefinite-lived intangibles meeting the recognition criteria must be recognized separately.
Question 6: Under IAS 8, which of the following changes requires retrospective application?
- Change in accounting estimate
- Correction of a prior-period error (Correct answer)
- Voluntary change that results in higher profit
- Change required by a new standard that prohibits retrospective application
Correct answer: Correction of a prior-period error
IAS 8 requires prior-period errors to be corrected by retrospective restatement unless it is impracticable to determine the period-specific effects.
Question 7: Which IFRS standard requires an entity to present a complete set of financial statements at least annually?
- IAS 1 (Correct answer)
- IAS 7
- IFRS 1
- IAS 34
Correct answer: IAS 1
IAS 1 Presentation of Financial Statements requires a complete set of financial statements to be presented at least annually.
IFRS Standards 2
Under IFRS 16, how must a lessee classify lease payments for a finance lease on the statement of cash flows?