MCQ On IFRS Vs GAAP

2.

Under ******, impairment must be tested annually.

IFRS
US GAAP
Both A and B

Correct Answer

A. IFRS

Explanation

Under IFRS (International Financial Reporting Standards) and US GAAP (Generally Accepted Accounting Principles), impairment must be tested annually. Therefore, both IFRS and US GAAP require annual impairment testing.

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3.

Under IFRS, interest received is reported as what type of cash flow?

Operating only
Financing only
Investing only
Operating or Financing
Operating or Investing
Financing or Investing

Correct Answer

A. Operating or Investing

Explanation

Under IFRS, interest received can be reported as either operating or investing cash flow. This is because interest received can be considered as part of the normal operations of the business (operating cash flow) or as a return on investments (investing cash flow) depending on the nature of the business and the source of the interest income.

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4.

Operating Profit Margin is equal to:

Operating profit / revenue
EBIT / net sales
Both A and B

Correct Answer

A. Both A and B

Explanation

The correct answer is "Both A and B." Operating profit margin can be calculated by dividing operating profit by revenue, or by dividing EBIT (earnings before interest and taxes) by net sales. Both formulas provide the same result, indicating the profitability of a company's operations as a percentage of its revenue.

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5.

Under US GAAP, if an asset is impaired, it is written down to:

The recoverable amount
Fair value

Correct Answer

A. The recoverable amount

Explanation

Under US GAAP, when an asset is impaired, it is written down to its recoverable amount. The recoverable amount refers to the higher of an asset's fair value less costs to sell or its value in use. This means that the asset's carrying amount is reduced to reflect its estimated recoverable value, which is the amount that the asset is expected to generate in the future. Writing down the asset to its recoverable amount ensures that the financial statements accurately reflect the reduced value of the impaired asset.

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6.

Available-for-sale securities are reported on the balance sheet at:

Fair value, but not reported on the income statement until sold
Fair value, and unrealized gains/losses are recognized on the income statement
Fair value, and any unrealized gains/losses are reported as other comprehensive income

Correct Answer

A. Fair value, and any unrealized gains/losses are reported as other comprehensive income

Explanation

Available-for-sale securities are reported on the balance sheet at fair value, which represents the current market price of the securities. Any unrealized gains or losses on these securities are not immediately recognized on the income statement. Instead, they are reported as other comprehensive income, a separate section in the financial statements that captures items that are not part of regular earnings. This treatment reflects the fact that available-for-sale securities are held for investment purposes and not for trading, and therefore their fluctuations in value are not considered part of the company's core operating activities.

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7.

Held-for-trading securities are reported on the balance sheet at:

Fair value
Amortized cost
Unamortized cost

Correct Answer

A. Fair value

Explanation

Held-for-trading securities are reported on the balance sheet at fair value. Fair value is the current market price of the securities, which represents their estimated worth in the open market. This approach provides a more accurate representation of the securities' value and allows investors and stakeholders to make informed decisions based on the current market conditions. Amortized cost refers to the original cost of the securities adjusted for any amortization or depreciation, while unamortized cost does not account for any adjustments and may not reflect the current market value. Therefore, fair value is the most appropriate reporting method for held-for-trading securities.

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8.

Under *******, an asset is impaired when its carrying value exceeds the recoverable amount. The recoverable amount is the greater of fair value less selling costs and the value in use (PV of expected cash flows).

IFRS
US GAAP
Both A and B

Correct Answer

A. IFRS

Explanation

Under IFRS (International Financial Reporting Standards), an asset is considered impaired when its carrying value exceeds the recoverable amount. The recoverable amount is determined by comparing the fair value of the asset less any selling costs, and the value in use, which is the present value of expected cash flows. This means that if the carrying value of an asset is higher than its recoverable amount, it is considered impaired and needs to be written down.

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2

9.

Which body uses UNDISCOUNTED cash flows to determine whether or not an asset is impaired?

IFRS
US GAAP
Both A and B

Correct Answer

A. US GAAP

Explanation

US GAAP uses UNDISCOUNTED cash flows to determine whether or not an asset is impaired. This means that the cash flows are not adjusted for the time value of money. Under US GAAP, an asset is considered impaired if the carrying amount of the asset exceeds the undiscounted cash flows expected to be generated by the asset. This approach is different from IFRS, which requires the use of discounted cash flows to determine impairment. Therefore, the correct answer is US GAAP.

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10.

Under , loss recoveries are permitted as long as they aren't above historical cost. Under , loss recoveries are not allowed for assets held-for-use.

IFRS / US GAAP
US GAAP / IFRS
US GAAP / neither body

Correct Answer

A. IFRS / US GAAP

Explanation

Under IFRS and US GAAP, loss recoveries are permitted as long as they aren't above historical cost. This means that if an asset's value decreases below its historical cost, it can be recovered up to the historical cost but not beyond that. However, under US GAAP, loss recoveries are not allowed for assets held-for-use. This means that if an asset is being used in the normal course of business operations, any loss recoveries cannot be recognized.

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MCQ On IFRS Vs GAAP

What are the two main financial reporting standard setting bodies?

Quiz Preview

Under ******, impairment must be tested annually.

Under IFRS, interest received is reported as what type of cash flow?

Operating Profit Margin is equal to:

Under US GAAP, if an asset is impaired, it is written down to:

Available-for-sale securities are reported on the balance sheet at:

Held-for-trading securities are reported on the balance sheet at:

Under *******, an asset is impaired when its carrying value exceeds the recoverable amount. The recoverable amount is the greater of fair value less selling costs and the value in use (PV of expected cash flows).

Which body uses UNDISCOUNTED cash flows to determine whether or not an asset is impaired?

Under , loss recoveries are permitted as long as they aren't above historical cost. Under , loss recoveries are not allowed for assets held-for-use.

MCQ On IFRS Vs GAAP

What are the two main financial reporting standard setting bodies?

Quiz Preview

Under ******, impairment must be tested annually.

Under IFRS, interest received is reported as what type of cash flow?

Operating Profit Margin is equal to:

Under US GAAP, if an asset is impaired, it is written down to:

Available-for-sale securities are reported on the balance sheet at:

Held-for-trading securities are reported on the balance sheet at:

Under *******, an asset is impaired when its carrying value exceeds the recoverable amount. The recoverable amount is the greater of fair value less selling costs and the value in use (PV of expected cash flows).

Which body uses UNDISCOUNTED cash flows to determine whether or not an asset is impaired?

Under *******, loss recoveries are permitted as long as they aren't above historical cost. Under *******, loss recoveries are not allowed for assets held-for-use.

Under , loss recoveries are permitted as long as they aren't above historical cost. Under , loss recoveries are not allowed for assets held-for-use.