Day 28--- Flashcards
(13 cards)
Which one of the following assets recognized in a business combination will require that the amount recognized be amortized over future periods?
- An asset arising from a contingency
- A reacquired right asset
- An indemnification asset
- A contingent consideration asset
A reacquired right asset
a reacquired right is a right granted by an acquirer to the acquiree prior to a business combination that is reacquired when the acquirer gains control of the acquiree or the asset in a business combination.
ex.
The acquiree may have acquired the right to use the acquirers trade name as part of a franchise agreement. A reacquired right is an intangible asset that is amortized by the acquirer over the remaining contractual period of the contract that grants the right.
Which one of the following items that was acquired in a business combination is most likely to be accounted for using post-combination accounting requirements specific for the item?
- Plant and equipment
- Debt investments held-to-maturity
- Contingency-based assets
- Patents
Contingency based assets
Assets (and liabilities) arising from contingencies are likely to be accounted for using specific post-combination accounting requirements. Those requirements provide that when new information is obtained about a contingency-based asset, it will be measured at the lower of (1) its acquisition-date fair value or (2) the best estimate of its future settlement amount.
Under IFRS, which of the following would not be recognized as part of a business combination?
- Contingent asset
- Contingent liability
- Goodwill
- Fair value of the consideration transferred
Contingent Asset
Under IFRS, contingent assets are not recognized. Under U.S. GAAP, contingent assets are recognized if the item meets the criteria of the definition of an asset.
Under IFRS, which one of the following instruments is most likely to be treated in its entirety as a financial liability?
- Convertible debt.
- Convertible preferred stock.
- Redeemable preferred stock.
- Common stock with a preemptive right.
Redeemable preferred stock
Under IFRS, redeemable preferred stock would likely be treated in its entirety as a financial liability because the stock can be redeemed (repurchased) by the issuing corporation at its discretion. Since the preferred shares can be redeemed at the discretion of the issuing corporation, it is not treated as equity, but rather as a liability
Which of the following describes an “accounting mismatch” as that expression is used in IFRS?
- Debts don’t equal credits.
- Liabilities exceed assets.
- Related assets and liabilities are valued using different measures.
- The value of a hedging instrument does not equal the value of the hedged item.
Related assets and liabilities are valued using different measures.
When a concentration of credit risk must be disclosed and the exact amount is uncertain, which one of the following amounts must be disclosed?
- Minimum amount at risk.
- Current period average amount at risk.
- Historic average amount at risk.
- Maximum amount at risk.
Maximum amount at risk.
When a concentration of credit risk exists, the maximum amount at risk must be disclosed. The maximum amount is measured as the gross fair value of all financial instruments that would be lost if the other parties fail completely to perform according to the terms of the contract(s) and assuming any collateral was of no value.
Assume Instco acquires an option to buy (a call option) 100 shares of Opco for $50 per share when the market price of Opco is $45 per share and that Instco paid a premium of $1.00 per share to acquire the options. Which one of the following is the underlying related to Instco’s options?
$50.00 per option
Stock options are derivatives; they derive their value from the value of the stock to which the option applies. The underlying of a derivative is a specified price, rate, or other monetary variable, in this case the (strike) price of each option, $50.00.
Stevie Company owns shares of stock in Rod Inc. Stevie received a $5,000 cash dividend. If Stevie reports under IFRS, the dividend received can be classified as
- Only an operating activity.
- Only as an investing activity.
- Either an operating activity or an investing activity.
- Either an operating activity or a financing activity.
Either operating or an investing activity.
Which one of the following sets correctly identifies the characteristics of foreign currency transactions for a U.S. entity?
Transaction denominated in (dollars/nondollars)?
Transaction measured in (Nondollars/dollars)?
Denominated in nondollars
Measured in dollars
Hedging a recognized asset is intended to offset the risk of exchange rate changes between which of the following dates?
- Between the dates a contractual right is established and when the right is fully satisfied.
- Between the dates a contractual right is established and when the right is recognized.
- Between the dates a transaction is planned and when the related asset is recognized.
- Between the dates an asset is recognized and when the asset is fully satisfied.
between the dates an asset is recognized and when the asset is fully satisfied.
What general kind of hedge, if any, is the hedge of a recognized asset or liability?
I. Fair value.
II. Cash flow.
one? Both? Neither?
Both
The hedge of a recognized asset or liability may be either a fair value hedge or a cash flow hedge, depending on management’s designation. However, the hedge of a recognized asset or liability denominated in a foreign currency generally will be a cash flow hedge.
How does the retail inventory method establish the lower-of-cost-or-market valuation for ending inventory?
- The procedure is applied on a cost basis at the unit level.
- By excluding net markups from the cost-to-retail ratio.
- By excluding beginning inventory from the cost-to-retail ratio.
- By excluding net markdowns from the cost-to-retail ratio.
By excluding net markdowns from the cost-to-retail ratio.
A hedge to offset the risk of loss on a recognized asset or liability is which of the following types of hedge?
Cash flow hedge.
Fair value hedge.
Either a cash flow hedge or a fair value hedge, at management’s discretion.
Neither a cash flow hedge nor a fair value hedge.
either
