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1

IASB's due process procedures includes the following steps.
I. Analyze comments to the Exposure Draft;
II. Issue the Exposure Draft;
III. Prepare the Discussion Paper;
IV. Add the item to the Working Agenda;
V. Discuss the issue;
VI. Issue the IFRS;
and VII. Publish the Discussion Paper.
What is the correct ordering of the steps?

A. IV, II, III, V, VII, I, VI
B. IV, V, II, III, VII, I, VI.
C. IV, III, VII, V, II, I, VI.
D. IV, V, III, VII, II, I, VI.

D. IV, V, III, VII, II, I, VI.

2

IAS 8, Accounting Policies, Changes in Accounting Estimates, and Errors includes the IFRS hierarchy. What is the second-level, or the level after the initial level, addressing the requirements and guidance in IFRS?
A. The definitions, recognition criteria, and measurement concepts for assets, liabilities, comprehensive income, revenue, expenses, and gains and losses in the Framework.
B. The definitions, recognition criteria, and measurement concepts for assets, liabilities, revenue, and expenses in the Framework.
C. Pronouncements of other standard-setting bodies, other accounting literature, and accepted industry practices.
D. Pronouncements of other standard setting bodies using a similar conceptual framework, other accounting literature, and accepted industry practices.

B. The definitions, recognition criteria, and measurement concepts for assets, liabilities, revenue, and expenses in the Framework.


The IFRS hierarchy, as presented in IAS 8, includes first, the requirements in IFRS dealings with similar or related issues; second, the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework; and lastly, the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature, and accepted industry practices, to the extent that these do not conflict with IFRS or the Framework. IAS 8, para. 12.

3

According to the IASB Framework, the process of reporting an item in the financial statements of an entity is:
A. Recognition.
B. Statement of Financial Position.
C. Disclosure.
D. Presentation.

A. Recognition.

According to the IASB's Framework, recognition is "the process of incorporating in the Balance Sheet or Income Statement an item that meets the definition of an element and satisfies the criteria for recognition." The element must be both probable that any future economic benefit will flow to or from the entity and have a cost or value that can be measured with reliability. IASB Framework, para. 82-83.

4

Identify which of the following is an assumption(s) underlying the preparation and presentation of financial statements under the IASB Framework.

Accrual Basis Going Concern
Yes No
Yes Yes
No Yes
No No

Accrual Basis Going Concern
Yes Yes

5

The purpose of IASB's Framework for the preparation and presentation of financial statements includes all of the following except:
A. Assist users of financial statements in interpreting the information contained in financial statements that are prepared in conformity with IFRSs.
B. Assist national standard-setting bodies in developing national standards.
C. Assist the IASB in the development of future IFRSs and in its review of existing IFRSs.
D. Assist the IASB in enforcing regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs.

D. Assist the IASB in enforcing regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs.


Remember that the IASB has no enforcement authority. The enforcement is carried out by regulators, such as the SEC in the U.S., Central Banks, and governmental authorities. As such, the purpose of the IASB's Framework is not to assist in enforcing regulations, accounting standards, and procedures but, rather, to assist in promoting the harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs. IASB Framework, para. 1.

6

Which of the following is a fundamental (primary) qualitative characteristic of useful financial information included in IASB's Framework?
A. Comparability.
B. Timeliness.
C. Relevance.
D. Understandability.

C. Relevance.

Relevance and faithful representation are the two fundamental qualitative characteristics of financial information (IASB Framework 5-18)

7

According to the IASB Framework, which of the following is an essential characteristic of an asset?
A. The claims to an asset's benefits are legally enforceable.
B. An asset is tangible.
C. An asset is obtained at a cost.
D. An asset provides future benefits.

D. An asset provides future benefits.

According to the IASB's Framework, an asset is defined as "a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity." IASB Framework, para. 49.

8

Under IFRS for SMEs, which of the following cost flow assumptions can be used for inventory valuation purposes?
FIFO LIFO Weighted Average Cost
Yes Yes Yes
Yes Yes No
Yes No Yes
Yes No No

FIFO LIFO Weighted Average Cost
Yes No Yes

Under IFRS for SMEs, the FIFO and weighted average cost assumptions of cost flow may be used for inventory valuation purposes, but the LIFO cost flow assumption may not be used.

9

Under IFRS for SMEs, which of the following methods, if any, can be used by an investor to account for an investment in another entity (an associate) over which the investor has significant influence?
Cost Method Equity Method
Yes Yes
Yes No
No Yes
No No

Cost Method Equity Method
Yes Yes

Under IFRS for SMEs, either the cost method or equity method may be used by an investor to account for an investment in another entity (called an "associate" in IFRS for SMEs) over which the investor has significant influence. Under U.S. GAAP, only the equity method may be used

10

Which one of the following is a characteristic of accounting under IFRS for SMEs?
A. Interest incurred during construction must be capitalized.
B. Earnings per share must be provided in the financial statements.
C. Goodwill must be amortized.
D. The LIFO cost flow assumption can be used in valuing inventories.

C. Goodwill must be amortized.

Under IFRS for SMEs, goodwill is assumed to have a limited life and is amortized over that life, or a period not to exceed 10 years if the life cannot be reasonably estimated. Under U.S. GAAP, goodwill is assumed to have an unlimited life and is not amortized.

11

Under IFRS for SMEs, which of the following, if any, must be disclosed in financial statements?
Earnings per Share (EPS) Information by Segment
Yes Yes
Yes No
No Yes
No No

Earnings per Share (EPS) Information by Segment
No No

12

Which one of the following is not an other comprehensive basis of accounting (OCBOA)?
A. Cash basis.
B. Modified cash basis.
C. Income tax basis.
D. IFRS for SMEs.

D. IFRS for SMEs.

IFRS for SMEs is not an other comprehensive basis of accounting, but rather is one form of generally accepted accounting principles (GAAP). The cash basis of accounting, the modified cash basis, and the income tax basis are all regarded as an other comprehensive basis of accounting (OCBOA) systems.

13

IFRS requires a classified Statement of Financial Position. What are the required classifications?
A. Cash; trade receivables and payables; property, plant and equipment; long-term assets and liabilities; and other assets and liabilities.
B. Cash; trade receivables and payables; property, plant and equipment; and other assets and liabilities.
C. Current, long-term, and other assets and liabilities.
D. Current and non-current assets and liabilities.

D. Current and non-current assets and liabilities.

Under IFRS, the classified Statement of Financial Position has just two classifications: Current and Non-current. Both assets and liabilities are divided into these two classifications, with Non-current being the default category.

14

Which of the following items would not appear on the Income Statement prepared using IFRS?
A. Discontinued operations.
B. Gross Profit.
C. Depreciation and amortization.
D. All items would appear on the Income Statement when using IFRS.

A. Discontinued operations.

15

The following information pertains to Grey Co. on December 31, 2003:
Checkbook balance
$12,000
Bank statement balance
16,000
Check drawn on Grey's account, payable to a vendor, dated and recorded 12/31/03 but not mailed until 1/10/04
1,800
On Grey's December 31, 2003 balance sheet, what amount should be reported as cash?

B. $13,800

Ethically, they don't want you reducing your income by the checks that you've not yet mailed. It's misleading

16

The following is Gold Corp.'s June 30, 2004, trial balance:

Cash overdraft
$ 10,000
Accounts receivable, net
$ 35,000
Inventory
58,000
Prepaid expenses
12,000
Land held for resale
100,000
Property, plant, and equipment, net.
95,000
Accounts payable and accrued expenses
32,000
Common stock
25,000
Additional paid-in capital
150,000
Retained earnings
83,000
_________
_________
$300,000
$300,000
========
========
Additional information:
Checks amounting to $30,000 were written to vendors and recorded on June 29, 2004, resulting in a cash overdraft of $10,000. The checks were mailed on July 9, 2004.
Land held for resale was sold for cash on July 15, 2004.
Gold issued its financial statements on July 31, 2004.
In its June 30, 2004, balance sheet, what amount should Gold report as current assets?

A. $225,000
B. $205,000
C. $195,000
D. $125,000

A. $225,000

Current assets are those assets expected to be consumed or realized in cash within one year of the balance sheet date. There is no overdraft because the checks were not sent as of the balance sheet date. Thus, the balance sheet should disclose $20,000 in cash ($30,000 - $10,000).

The land held for resale is a current asset because it is expected to be sold in the next year (and the corroboration of this expectation was known before the issuance of the financial statements).

Cash
$ 20,000
Net accounts receivable
35,000
Inventory
58,000
Prepaid expenses
12,000
Land held for resale
100,000
Total current assets
$225,000

17

On October 31, 2005, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15, 2005, payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance.
How should these accounts be reported in Dingo's October 31, 2005, classified balance sheet?

A. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
B. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.
C. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.
D. The segregated and regular accounts should be reported as current assets net of the overdraft

A. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

The accounts are with different banks. Thus, the accounts cannot be offset against one another.
The overdraft is a liability because the bank honored a check or withdrawal causing the account to be negative. The firm owes the bank this amount.

The regular corporate account is part of the cash account, a current asset. The segregated account is a long-term investment. The cash in this asset is set aside for a specific purpose. There is no intent to use the cash for ordinary operating purposes.

18

Cook Co. had the following balances on December 31, 2004:

Cash in checking account
$350,000
Cash in money market account
250,000
U.S. Treasury bill, purchased 12/1/04, maturing 2/28/05
800,000
U.S. Treasury bond, purchased 3/1/04, maturing 2/28/05
500,000
Cook's policy is to treat as cash equivalents all highly liquid investments with a maturity of three months or less when purchased. What amount should Cook report as cash and cash equivalents in its December 31, 2004, balance sheet?

A. $600,000
B. $1,150,000
C. $1,400,000
D. $1,900,000

C. $1,400,000


The first three items in the list are included in cash and cash equivalents. The total of these items is $1,400,000 ($350,000 + $250,000 + $800,000).
Money market accounts are included in cash equivalents because they maintain a $1 per share value, and are readily convertible to cash (there is no maturity date). The Treasury bill is a cash equivalent because it has an original maturity to the firm of three months or less (12/1/04, maturing 2/28/05).

The Treasury bond matures within two months from the balance sheet date but did not have an original maturity of less than three months. The original maturity is one year, far in excess of the three month limit and thus the bond is not a cash equivalent.

The reason for the three month rule is to minimize price fluctuations due to interest rate changes. A security with a fluctuating price is not "equivalent" to cash. One year is too long a time to expect interest rates to remain stable.

19

The following are held by Smite Co.:
Cash in checking account $20,000
Cash in bond sinking fund account 30,000
Post-dated check from customer dated one month from balance sheet date 250
Petty cash 200
Commercial paper (matures in two months) 7,000
Certificate of deposit (matures in six months) 5,000
What amount should be reported as cash and cash equivalents on Smite's balance sheet?

A. $57,200
B. $32,200
C. $27,450
D. $27,200

D. $27,200

The cash balance is $20,200: the sum of the checking account balance and the petty cash. Because it has a maturity of less than three months, the only cash equivalent is the $7,000 of commercial paper. The final sum of these two accounts is $27,200.

20

Poe, Inc. had the following bank reconciliation at March 31, 2005:
Balance per bank statement, 3/31/05 $46,500
Add deposit in transit 10,300
56,800
Less outstanding checks 12,600
Balance per books, 3/31/05 $44,200
Data per bank for the month of April 2005 follow:
Deposits $58,400
Disbursements 49,700

All reconciling items at March 31, 2005 cleared the bank in April. Outstanding checks at April 30, 2005 totaled $7,000. There were no deposits in transit at April 30, 2005. What is the cash balance per books at April 30, 2005?
A. $48,200
B. $52,900
C. $55,200
D. $45,900

A. $48,200

Balance per books, 3/31 $44,200
Deposits per bank, April $58,400
Less deposit in transit, 3/31 (10,300)
Equals deposits made by firm in April 48,100
Checks clearing bank in April $49,700
Less outstanding checks, 3/31 (12,600)
Plus outstanding checks, 4/30 7,000
Equals checks written by firm in April (44,100)
Balance per books, 4/30 $48,200

21

A bank reconciliation with the headings "Balance per Books" and "Balance per Bank" lists three adjustments under the former and four adjustments under the latter. The company makes separate adjusting entries for each item in the reconciliation that requires an adjustment. How many adjusting entries are recorded?

A.
3

B.
4

C.
7

D.
0

You don't adjust the bank you adjust the books

A.
3

22

In preparing its August 31, 1990 bank reconciliation, Apex Corp. has the following information available:
Balance per bank statement, 8/31/90 $18,050
Deposit in transit, 8/31/90 3,250
Return of customer's check for insufficient funds, 8/31/90 600
Outstanding checks, 8/31/90 2,750
Bank service charges for August 100
On August 31, 1990, Apex's correct cash balance is
A. $18,550
B. $17,950
C. $17,850
D. $17,550

A. $18,550

Balance per bank statement $18,050
Plus deposit in transit 3,250
Less outstanding checks (2,750)
Equals ending cash balance $18,550

The effects of the bank service charges and the insufficient funds check are already reflected in the balance per bank statement. The bank was the source of that information.