MCQ On IFRS Vs GAAP

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Quizzes Created: 4 | Total Attempts: 2,798
Questions: 10 | Attempts: 603

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Accounting Quizzes & Trivia

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Questions and Answers
  • 1. 

    What are the two main financial reporting standard setting bodies? 

    • A.

      IFRS and US GAAP

    • B.

      IASB and FASB

    • C.

      SEC and FSA

    Correct Answer
    B. IASB and FASB
    Explanation
    The two main financial reporting standard setting bodies are the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The IASB is responsible for developing and promoting the International Financial Reporting Standards (IFRS), which are used by companies in many countries around the world. The FASB, on the other hand, is responsible for developing and promoting the Generally Accepted Accounting Principles (GAAP) in the United States. These two bodies play a crucial role in setting the accounting standards that companies must follow in their financial reporting.

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  • 2. 

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

    • A.

      IFRS

    • B.

      US GAAP

    • C.

      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?

    • A.

      Operating only

    • B.

      Financing only

    • C.

      Investing only

    • D.

      Operating or Financing

    • E.

      Operating or Investing

    • F.

      Financing or Investing

    Correct Answer
    E. 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: 

    • A.

      Operating profit / revenue

    • B.

      EBIT / net sales

    • C.

      Both A and B

    Correct Answer
    C. 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: 

    • A.

      The recoverable amount

    • B.

      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: 

    • A.

      Fair value, but not reported on the income statement until sold

    • B.

      Fair value, and unrealized gains/losses are recognized on the income statement

    • C.

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

    Correct Answer
    C. 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:

    • A.

      Fair value

    • B.

      Amortized cost

    • C.

      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). 

    • A.

      IFRS

    • B.

      US GAAP

    • C.

      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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  • 9. 

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

    • A.

      IFRS

    • B.

      US GAAP

    • C.

      Both A and B

    Correct Answer
    B. 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.

    • A.

      IFRS / US GAAP

    • B.

      US GAAP / IFRS

    • C.

      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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