International Accounting - Ch 9
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____________ accounting was created to account for changes in the general price level and makes adjustments to the historical costs of non-monetary assets to update for changes in the purchasing power of the currency.
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General purchasing power
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Current replacement cost
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Price level
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Current cost
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About This Quiz
IFRS focus on accounting for inflation, consolidations, and segment reporting contrasted with U. S. GAAP
Basef on chapter 9 of the textbook International Accounting 3rd edtion by Doupnik and Perera
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- 2.
_________________ accounting was created to account for specific price changes by updating the values of non-monetary assets from historical cost to the current cost to replace those assets.
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General purchasing power
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Price level
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Current replacement cost
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Specific price
Correct Answer
A. Current replacement costExplanation
Current replacement cost accounting was created to account for specific price changes by updating the values of non-monetary assets from historical cost to the current cost to replace those assets. This method ensures that the financial statements reflect the current market value of the assets, taking into consideration any changes in prices over time. By using the current replacement cost, companies can make more informed decisions regarding the value of their assets and the financial health of the organization.Rate this question:
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- 3.
General purchasing power accounting includes purchasing power gains and losses in net income.
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True
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False
Correct Answer
A. TrueExplanation
General purchasing power accounting is a method of accounting that takes into account changes in the general price level. It adjusts the financial statements to reflect the changes in purchasing power of the currency. This includes recognizing purchasing power gains and losses in net income. Therefore, the statement that general purchasing power accounting includes purchasing power gains and losses in net income is true.Rate this question:
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- 4.
General purchasing power accounting requires all assets to be restated based on the general price index (GPI).
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True
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False
Correct Answer
A. FalseExplanation
All nonmonetary assets and liabilities, stockholders' equity, and all income statement items are restated from the GPI at the transaction date to the GPI at the end of the current period.Rate this question:
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- 5.
IFRS requires companies operating in hyperinflationary economies to use ______________ accounting.
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Current replacement cost
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General purchasing power
Correct Answer
A. General purchasing powerExplanation
IFRS requires companies operating in hyperinflationary economies to use general purchasing power accounting. This accounting method takes into consideration the changes in the general price level caused by inflation. It adjusts the financial statements to reflect the changes in purchasing power of the currency, allowing for more accurate reporting of the company's financial position and performance. This is important in hyperinflationary economies where the value of the currency is constantly eroding, as it ensures that financial statements provide meaningful and comparable information to users.Rate this question:
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- 6.
IAS 27 requires a parent to consolidate all subsidiaries unless,
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The subsidiary was acquired with the intention to be disposed of within 12 months and management is actively seeking a buyer
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The subsidiary is dormant and its operations are insignificant to the company as a whole
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Management is actively seeking a buyer
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A or b
Correct Answer
A. A or bExplanation
IAS 27 requires a parent to consolidate all subsidiaries unless the subsidiary was acquired with the intention to be disposed of within 12 months and management is actively seeking a buyer, or if the subsidiary is dormant and its operations are insignificant to the company as a whole. In both cases, the consolidation of the subsidiary may not be necessary as it does not significantly impact the financial statements of the parent company. Therefore, either option a or b can be valid reasons for not consolidating the subsidiary.Rate this question:
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- 7.
US GAAP allows a subsidiary to be exluded from consolidation if it is being held for sale
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True
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False
Correct Answer
A. FalseExplanation
Under US GAAP, a subsidiary cannot be excluded from consolidation solely because it is being held for sale. The criteria for exclusion from consolidation include having a plan to sell the subsidiary, actively seeking a buyer, and the sale being highly probable within a year. Additionally, other conditions must be met, such as the subsidiary being available for immediate sale in its current condition and the sale being unlikely to be blocked. Therefore, the statement that a subsidiary can be excluded from consolidation if it is being held for sale is false.Rate this question:
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- 8.
IFRS uses the ___________ method to account for business compbinations that are fully consolidated.
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Pooling
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Historical cost
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Purchase
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Fair value
Correct Answer
A. PurchaseExplanation
IFRS uses the purchase method to account for business combinations that are fully consolidated. This method involves recording the acquired assets and liabilities at their fair values at the date of acquisition. It recognizes goodwill as the excess of the purchase price over the fair value of the net identifiable assets acquired. This method provides a more accurate representation of the financial position and performance of the combined entity, as it reflects the economic substance of the business combination.Rate this question:
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- 9.
The purchase methods requires assets and liabilities of the subsidiary to be restated at their __________ as of the date of acquisition.
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Historical costs
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Fair value
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Replacement value
Correct Answer
A. Fair valueExplanation
In the context of the question, the correct answer is "fair value." When a company acquires a subsidiary, it is required to restate the assets and liabilities of the subsidiary at their fair value as of the date of acquisition. Fair value represents the estimated market value of an asset or liability, which takes into account factors such as supply and demand, market conditions, and other relevant factors. Restating the subsidiary's assets and liabilities at fair value ensures that the acquiring company accurately reflects the true value of the subsidiary's financial position on its own balance sheet.Rate this question:
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- 10.
IFRS allows the determination of the initial amount to measure subsidiaries assets and liabilities that are acquired at under 100 percent through either the parent company concept or the economic unit aka the entity concept.
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True
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False
Correct Answer
A. TrueExplanation
IFRS (International Financial Reporting Standards) provides guidance on how to determine the initial amount to measure assets and liabilities of subsidiaries that are acquired at under 100 percent. This can be done through either the parent company concept or the economic unit concept. The parent company concept involves measuring the subsidiary's assets and liabilities at their fair value on the date of acquisition. The economic unit concept involves measuring the subsidiary's assets and liabilities at their fair value, but also considering the fair value of the non-controlling interest in the subsidiary. Therefore, the statement that IFRS allows the determination of the initial amount to measure subsidiaries' assets and liabilities through either the parent company concept or the economic unit concept is true.Rate this question:
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- 11.
The parent company concepts values subsidiary's assets and liabilities at book value plus the parent's ownsership percentage of the difference between fair value and book value at the date of acquisition.
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True
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False
Correct Answer
A. TrueExplanation
The parent company follows the concept of valuing the subsidiary's assets and liabilities at their book value. Additionally, the parent company also includes its ownership percentage of the difference between fair value and book value at the date of acquisition. This indicates that the statement is true.Rate this question:
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- 12.
The economic unit or entity concept values subsidiary's assets and liabilites at 100 percent of their fair value at the date of acquisition.
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True
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False
Correct Answer
A. TrueExplanation
The economic unit or entity concept is a fundamental accounting principle that treats a subsidiary as a separate entity from its parent company. According to this concept, when a parent company acquires a subsidiary, the assets and liabilities of the subsidiary are valued at 100 percent of their fair value at the date of acquisition. This means that the subsidiary's financial position is recorded independently from the parent company, allowing for a more accurate representation of its value and performance. Therefore, the statement "True" is the correct answer.Rate this question:
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- 13.
IFRS and US GAAP require goodwill to be tested for impairment annually.
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True
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False
Correct Answer
A. TrueExplanation
Both IFRS (International Financial Reporting Standards) and US GAAP (Generally Accepted Accounting Principles) indeed require goodwill to be tested for impairment annually. Goodwill is an intangible asset that represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Impairment testing ensures that the carrying amount of goodwill is not overstated and reflects its true value. This annual assessment is necessary to identify any potential decrease in the value of goodwill and adjust the financial statements accordingly. Therefore, the statement "True" is the correct answer.Rate this question:
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- 14.
The pooling of interest method is permitted in US GAAP
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True
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False
Correct Answer
A. FalseExplanation
The pooling of interest method is not permitted in US GAAP. This method was used to account for business combinations prior to the issuance of the Financial Accounting Standards Board (FASB) Statement No. 141, which requires the use of the purchase method. The pooling of interest method allowed companies to combine their financial statements as if they had always been one entity, without recognizing the fair value of the assets and liabilities acquired. However, this method was considered to be less transparent and reliable, and therefore, it is no longer allowed under US GAAP.Rate this question:
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