IFRS Strategic Planning and Decision Making 2 — Questions and Answers
Question 1: Under IFRS, when management commits to a formal plan to sell a non-current asset, the asset must be classified as held for sale only if it is available for immediate sale and sale is highly probable within:
- 6 months
- 12 months (Correct answer)
- 18 months
- 24 months
Correct answer: 12 months
IFRS 5 requires the sale to be completed within 12 months of classification as held for sale.
Question 2: A company is evaluating a strategic acquisition. Under IFRS 3, the acquirer must measure identifiable assets acquired and liabilities assumed at:
- Book value on the acquiree's balance sheet
- Fair value at the acquisition date (Correct answer)
- Historical cost adjusted for inflation
- Net realizable value
Correct answer: Fair value at the acquisition date
IFRS 3 requires all identifiable assets and liabilities to be recognized at fair value on the acquisition date.
Question 3: When a company decides strategically to change its functional currency, how should the change be accounted for under IAS 21?
- Retrospectively with restatement of prior periods
- Prospectively from the date of the change (Correct answer)
- As a prior period error under IAS 8
- No change is permitted once functional currency is established
Correct answer: Prospectively from the date of the change
IAS 21 requires a change in functional currency to be applied prospectively from the date of the change.
Question 4: For strategic decision making, management uses IFRS segment reporting (IFRS 8) to evaluate performance. Reportable segments are identified based on:
- Geographic regions only
- Product lines only
- The chief operating decision maker's internal reporting (Correct answer)
- Regulatory requirements
Correct answer: The chief operating decision maker's internal reporting
IFRS 8 uses the management approach, identifying segments based on how the CODM reviews internal reports.
Question 5: A strategic plan involves significant restructuring. Under IAS 37, a provision for restructuring costs can only be recognized when:
- The board approves the restructuring plan in a private meeting
- A detailed formal plan exists and a valid expectation has been raised in those affected (Correct answer)
- Management estimates the costs with reasonable certainty
- The restructuring begins within 6 months
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 communication to those affected before a restructuring provision is recognized.
Question 6: Under IFRS, when assessing impairment of a cash-generating unit as part of strategic review, goodwill allocated to the CGU is tested:
- Only when indicators of impairment exist
- Annually, regardless of impairment indicators (Correct answer)
- Every three years
- Only upon disposal of the CGU
Correct answer: Annually, regardless of impairment indicators
IAS 36 requires goodwill to be tested for impairment annually and whenever an impairment indicator exists.
Question 7: A company strategically decides to issue convertible bonds. Under IAS 32, the proceeds must be split between:
- Current and non-current liabilities
- A liability component and an equity component (Correct answer)
- Operating and financing activities
- Debt and deferred revenue
Correct answer: A liability component and an equity component
IAS 32 requires compound instruments like convertible bonds to be split into their liability and equity components at issuance.
IFRS Strategic Planning and Decision Making 2
Under IFRS, when management commits to a formal plan to sell a non-current asset, the asset must be classified as held for sale only if it is available for immediate sale and sale is highly probable within: