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Exam 11: Worldwide Accounting Diversity and International Accounting Standards

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Question 1

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Which of the following is not an IFRS pronouncement originally issued by the IASB?

A) Business Combinations.
B) First-Time Adoption of IFRS.
C) Financial Instruments: Disclosures.
D) Agriculture.
E) Operating Segments.

F) B) and D)
G) C) and D)

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Question 2

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A company incurs research and development costs of $200,000 in 2011 of which $50,000 of these costs relate to development activities because certain criteria have been met which suggest that an intangible asset has been created. What amount should be recognized as research and development expense in 2011 using U.S. GAAP?

A) $50,000.
B) $150,000.
C) $200,000.
D) $0.
E) $250,000.

F) A) and D)
G) C) and D)

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Question 3

Multiple Choice

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In countries of Latin America:

A U.S. company has many foreign subsidiaries and wants to convert its consolidated financial statements from U.S. GAAP to IFRS. Which of the following items is not one of the likely accounting issues to resolve for the opening IFRS balance sheet?

Principal Company is a U.S.-based company that prepares its consolidated financial statements in accordance with U.S. GAAP. Principal reported net income of $2,600,000 in 2011 and stockholders' equity of $12,000,000 at December 31, 2011. Principal wants to determine the reporting impact of switching to IFRS. The following three items would create differences in financial reporting: 1) At December 31, 2011, inventory had a historical cost of $850,000, a replacement cost of $700,000, and a net realizable value of $800,000. The normal profit margin was 10%. 2) Principal acquired a building at the beginning of 2009 at a cost of $5,000,000. The building has an estimated useful life of 20 years, an estimated residual value of $1,000,000, and is being depreciated on a straight-line basis. On January 1, 2011, the building has a fair value of $5,500,000. There is no change in the estimated useful life or residual value. In a switch to IFRS, Principal would use the revaluation model in IAS 16 to determine the carrying value of property, plant, and equipment subsequent to acquisition. 3) In 2011, Principal incurred $800,000 of research and development for a new product, of which 35% relates to development activities subsequent to the point at which criteria indicating the creation of an intangible asset had been met. As of the end of 2011, development of the new product had not been completed. Required: 1) Prepare a schedule reconciling net income under U.S. GAAP to net income under IFRS for the year ended December 31, 2011. 2) Prepare a schedule reconciling stockholders' equity under U.S. GAAP to

A company incurs research and development costs of $200,000 in 2011 of which $50,000 of these costs relate to development activities because certain criteria have been met which suggest that an intangible asset has been created. As a result of research and development costs, what is the difference in income between reporting using U.S. GAAP and IFRS in 2011?

Which of the following are not key FASB initiatives to further converge IFRS and U.S. GAAP?

The major providers of financing in some countries are stockholders, while other countries predominantly use banks as the main financing source. What difference does it make to accounting disclosures in comparing a company from one of each of those countries?

Which one of the following is not a background requirement for any IASB members?

What is meant by harmonization of accounting standards?

A company sells a building to a bank in 2011 at a gain of $100,000 and immediately leases the building back for period of five years. The lease is accounted for as an operating lease. The building was originally purchased for $200,000 and currently had a book value of $50,000 at the date of the sale. Assume the seller of the building is a U.S. company that is preparing to convert from U.S. GAAP to IFRS. At December 31, 2012, with regard to the sale and leaseback accounting, what amount would reconcile stockholders' equity from U.S. GAAP to IFRS at December 31, 2012?

A company sells a building to a bank in 2011 at a gain of $100,000 and immediately leases the building back for period of five years. The lease is accounted for as an operating lease. The building was originally purchased for $200,000 and currently had a book value of $50,000 at the date of the sale. As a result of the sale and leaseback transaction in 2011, what is the difference between income using U.S. GAAP and IFRS in 2012?

A company acquired a new piece of equipment on January 1, 2009 at a cost of $200,000. The equipment is expected to have a useful life of 10 years, a residual value of $20,000 and is depreciated on a straight-line basis. On January 1, 2011, the equipment was appraised and determined to have a fair value of $190,000 and a residual value of $25,000 and a remaining useful life of 10 years. At what amount should the equipment be reported on the December 31, 2011 balance sheet under the IFRS cost model?

A company incurs research and development costs of $200,000 in 2011 of which $50,000 of these costs relate to development activities because certain criteria have been met which suggest that an intangible asset has been created. What amount should be recognized as research and development expense in 2011 using IFRS?

What international organization currently promulgates IFRS?

The following information pertains to inventory held by a company at December 31, 2011. What is the amount of inventory loss shown on the income statement under U.S. GAAP?

The following information pertains to inventory held by a company at December 31, 2011. What is the amount of inventory loss shown on the income statement under IFRS?

The IASB and FASB are working on several joint projects. Which of the following is not a topic of the Revenue Recognition Project?

What are the two major types of legal systems used around the world?

The IASB and FASB are working on several joint projects. What is the purpose of the Financial Statement Presentation Project?