International Accounting Final Exam
Course Introduction
International Accounting explores the principles, standards, and practices of accounting in a global context, emphasizing the analysis and comparison of financial reporting systems across different countries. The course covers topics such as International Financial Reporting Standards (IFRS), the convergence and differences between IFRS and US Generally Accepted Accounting Principles (GAAP), the challenges of currency translation, and the implications of international taxation and transfer pricing. Students will also examine the impact of cultural, political, and economic environments on accounting practices, and develop skills to analyze multinational financial statements and make informed business decisions in the context of global markets.
Recommended Textbook
Financial Accounting and Reporting An International Approach 1st Edition by Craig Deegan
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Chapter 1: An Overview of the International External Reporting Environment
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Q1) Directors could elect not to comply with an accounting standard on the grounds that applying the particular accounting standard would cause the financial statements not to present a 'true and fair view'.
A)True
B)False
Answer: True
Q2) In adopting International Financial Reporting Standards (IFRSs),the UK Accounting Standards Board (ASB)has:
A)embraced the IFRSs without change.
B)been disbanded as it is no longer required.
C)used the IFRSs only as a foundation for its own set of standards and has identified where these own standards do not comply with IFRSs.
D)issued its own standards and 're-badged' them as FRSs.
Answer: D
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance
to Financial Reporting
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Q1) Which of the following statement(s)is/are true of the qualitative characteristic 'comparability'?
A)A financial report must show corresponding results for the preceding period.
B)A financial report must be presented in a consistent manner, hence, an entity must adopt similar accounting policies from period to period even though a more reliable and relevant alternative exist.
C)A financial report must contain all material and relevant items.
D)A financial report must show corresponding results for the preceding period and be presented in a consistent manner, hence, an entity must adopt similar accounting policies from period to period even though a more reliable and relevant alternative exist.
Answer: A
Q2) The objective of financial statements is to provide future oriented information to help investors make business decisions.
A)True
B)False
Answer: False
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Chapter 3: Theories of Financial Accounting
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Q1) How would the deprival value of an asset be determined?
A)It is the net selling price except where the value to the business (present value) is less or the current replacement cost greater.
B)It is the present value of the future cash flows to be generated by the asset except where the current replacement cost or net selling price is less than that value.
C)It is the value to the business of the asset (present value) within the bounds that this value is not less than the net selling price or greater than its current replacement cost.
D)It is the current replacement cost where the present value is less than the current replacement cost and greater than the net selling price.
Answer: C
Q2) Information asymmetry is the situation in which the agent has access to information not available to the principal.
A)True
B)False
Answer: True
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Chapter 4: An Overview of Accounting for Assets
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Q1) If an asset's carrying amount is less than its recoverable amount,the increase in value is recognised as a gain.
A)True
B)False
Q2) IAS 1 indicates that when presenting a statement of financial position,an entity should:
A)present all assets and liabilities as two groups and disclose their specific classifications in notes as per paragraphs 57-67.
B)only present items on the basis of liquidity if that information is reliable and more relevant.If this is the case, assets should be discretely grouped into current and non-current classifications.
C)present items broadly in order of liquidity if that information is reliable and more relevant than following paragraphs 66-76.
D)always classify items as current and non-current.
Q3) Current generally accepted accounting practices require one approach to measurement to be applied to all classes of assets.
A)True
B)False
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Chapter 5: Depreciation of Property, Plant and Equipment
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Q1) Galway Plc purchased a computer for 6000,2 years ago.At the beginning of this year the motherboard was replaced to maintain its existing service capacity at a cost of 2000.The improvement to the computer will work only on the existing computer and it does not extend its useful service potential.Galway has been depreciating the equipment using the declining-balance method at a rate of 33%.What is the depreciation charge calculated at the end of the current year (rounded to the nearest euro)?
A) 1778
B) 1549
C) 2640
D) 889
Q2) Profit on the sale of an asset is calculated:
A)by subtracting the disposal proceeds from the current carrying amount of the asset. B)after assessing the fair value of the asset and subtracting the proceeds on the sale.
C)once depreciation has been applied to the date of sale.
D)by subtracting the updated carrying amount from the net proceeds on disposal.
Q3) Explain how different methods of cost apportionment may unrealistically provide high values for non-current assets.
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Chapter 6: Revaluations and Impairment Testing of
Non-Current Assets
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Q1) IAS 16 provides guidance on fair values which states:
A)Where an active and liquid market exists for an asset, the market price represents evidence of the asset's fair value.
B)Fair values are determined on the basis that an entity is a going concern.
C)Where no market exists the price should be based on the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
D)All of the given answers are correct.
Q2) Explain why the accounting treatment from increments and decrements are not symmetrical with respect to the revaluation of property,plant and equipment.
Q3) A firm that has both compensation and debt contracts will prefer the revaluation model over the cost model to measure its property,plant and equipment.Discuss.
Q4) The fair value of a non-current asset is defined in IAS 16 as the gross amount for which the asset can be sold when the entity is preparing to liquidate.
A)True
B)False
Q5) Discuss the process for the reversal of revaluation decrements and increments.
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Chapter 7: Inventory
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Q1) According to IAS 2 inventories include assets:
A)such as service contracts arising under construction contracts.
B)held over the long term for use in the production process.
C)such as financial instruments.
D)held in the process of production, preparation or conversion for sale.
Q2) The only difference between IAS 2 and company law is that the 'international' standards allow inventory to be valued using LIFO.
A)True
B)False
Q3) Discuss the relative merits of using FIFO and LIFO as basis of cost of inventories during periods of rising prices.
Q4) What are the benefits of using LIFO method in jurisdictions where this inventory cost-flow assumption is permitted?
Q5) The valuation of inventories may be on the basis of:
A)the lower of direct cost and recoverable amount.
B)regular revaluations by classes of inventories undertaken at the end of the period.
C)the weighted average of market value and absorption cost over the period.
D)the lower of cost and net realisable value.
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Chapter 8: Accounting for Intangibles
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Q1) An active market is defined in the standards as a market that has:
A)willing buyers and sellers.
B)prices are publicly available.
C)items traded are homogeneous.
D)All of the given answers are necessary.
Q2) Which of the following statements in regard to goodwill is/are correct in accordance with IAS 36 Impairment of Assets?
A)Goodwill may be amortised when it has a finite life.
B)Goodwill is subjected to impairment testing every three years.
C)Upward revaluation of goodwill is permitted as long as it is a reversal of prior years' impairment losses.
D)None of the given statements are correct.
Q3) Where a revaluation occurs,it is to be to the fair value of the asset.
A)True
B)False
Q4) IAS 38 prohibits the recognition of intangible assets using the revaluation model.
A)True
B)False
Q5) Explain the difference between an 'infinite life' and an 'indefinite life'.
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Chapter 9: An Overview of Accounting for Liabilities
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Q1) When determining whether a liability exists,the intentions or actions of management need to be taken into account.
A)True
B)False
Q2) Executory contracts are within the scope of IAS 37 Provisions,Contingent Liabilities and Contingent Assets.
A)True
B)False
Q3) When an entity's management resolves that the entity will offer to repair a defect it has recently discovered in one of its products,even though the nature of the defect is such that purchasers of the product would not expect the entity to do so:
A)it must immediately recognise a liability.
B)it must immediately recognise a liability, if it can be measured reliably.
C)it will never recognise a liability as the offer to repair was not part of the contract of sale.
D)it will only need to recognise a liability when the entity makes the offer public, or commits itself in some other way to make the repairs.
Q4) Discuss the criteria required to classify a liability as current.
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Chapter 10: Accounting for Leases
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Q1) For a lessee entering into a finance lease,initial direct costs are:
A)expensed immediately.
B)expensed at the end of the lease term.
C)capitalised as part of the lease receivable.
D)capitalised as part of the cost of the leased asset.
Q2) Lease incentives are:
A)not covered by IAS 17 and therefore may lead to divergent practices.
B)revenues for the lessees and may be recorded in the initial period of the lease contract.
C)designed to entice lessees to enter into non-cancellable operating leases.
D)not covered by IAS 17 and therefore may lead to divergent practices and designed to entice lessees to enter into non-cancellable operating leases.
Q3) Discuss how entities with debt-to-asset constraints are affected by the classification of leases as either finance or operating leases.What are the implications for lease accounting?
Q4) A guaranteed residual value is that part of the residual value that is guaranteed by the lessee,or by a party related to the lessee.
A)True
B)False
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Chapter 11: Share Capital, Reserves and Share Options
Employee Bonus Schemes
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Q1) Explain the differences between a rights issue and share options.
Q2) A public issue of shares involves:
A)compiling and then issuing a prospectus that outlines the details of the share issue so those interested can make an informed decision.
B)making the general public aware that shares are available for sale at a set price.
C)only issuing a limited number of shares to ensure there is sufficient demand for a full subscription.
D)issuing ordinary shares to all members of the public who are interested.
Q3) For each class of share capital,an entity shall disclose either on the face of the statement of financial position or in the notes:
A)shares in the entity held by the entity or its subsidiaries or associates.
B)the number of shares authorised.
C)the number of shares issued but not fully paid.
D)all of the given answers.
Q4) Explain the various possible outcomes when there is a forfeiture of shares,due to non-payment of amounts owing when a call is made.
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Chapter 12: Accounting for Financial Instruments
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Q1) When initially recognising the liability and equity components of a compound financial instrument,gains and losses arise and must be recognised.
A)True
B)False
Q2) The carrying amount of a financial 'held-to-maturity' asset,subject to an impairment loss:
A)can be reduced through an allowance account.
B)can be reduced through a provision account.
C)must be reduced through an allowance account.
D)must be reduced directly.
Q3) Which of the following are examples of primary financial instruments?
A)futures contracts
B)unearned revenue
C)accrued rent
D)unearned revenue and accrued rent
Q4) Explain how financial instruments would be classified as financial liabilities or equity instruments.
Q5) Distinguish futures contracts entered for hedge purposes from futures contracts entered for speculative purposes.
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Chapter 13: Revenue Recognition Issues
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Q1) Discuss the different conditions detailed in IASB (2011)Revenue from Contracts with Customers that must be satisfied before the percentage-of-completion method can be used.
Q2) Which of the following statements is not an indicator of the transfer of the control of an asset to a customer?
A)The entity has a present right to payment for the asset.
B)The entity has transferred physical possession of the asset.
C)The customer has legal title to the asset.
D)When goods or services are exchanged or swapped for goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.
Q3) Gains must be reported net of related expenses.
A)True B)False
Q4) Explain the difference between revenue and gains as defined in the IASB Conceptual Framework.
Q5) Interest revenue is derived from borrowing resources from another entity. A)True B)False
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Chapter 14: The Statement of Comprehensive Income and Statement of Changes in Equity
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Q1) When initial application of an International Financial Reporting Standard has an effect on the current period or any prior period,would have such an effect except that it is impracticable to determine the amount of the adjustment,or might have an effect on future periods,an entity shall disclose:
A)the title of the International Financial Reporting Standard.
B)the nature of the change in accounting policy.
C)when applicable, a description of the transitional provisions.
D)all of the given answers.
Q2) In establishing the classification of items in the statement of profit and loss,the size of an item is an appropriate basis for establishing a separate classification (by nature or function)for it.
A)True
B)False
Q3) Discuss three items that are permitted in IAS 1 Presentation of Financial Statements to be presented in other comprehensive income and explain how each item arises.
Q4) What is comprehensive income and how would users of financial statements get an indication of what the figure for comprehensive income might be?
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Chapter 15: Accounting for Income Taxes
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Q1) A company has received 40 000 for subscription revenue in advance and recorded a liability account 'revenue received in advance'.Revenue is taxed when it is received.The tax rate is 30%.What is the tax base for this item?
A) 0
B) 40 000
C) 12 000
D) 36 000
Q2) Which of the following statements is correct with respect to AIS 12 Income Taxes when a non-current asset is revalued?
A)On revaluation date, the revaluation reserve is increased by the product of the temporary difference and the tax rate.
B)On revaluation date, the revaluation reserve is decreased by the product of the temporary difference and the tax rate.
C)On revaluation date, a deferred tax liability is created equal to the amount of the temporary difference.
D)On revaluation date, a deferred tax asset is created equal to the amount of the temporary difference.
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Chapter 16: The Statement of Cash Flows
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Q1) An item considered to be a cash equivalent in one company may not be considered as such in another.This is because:
A)The operating cycle varies between companies.
B)Companies have different balance dates and this will affect the measurement of the term to maturity.
C)Companies use highly liquid items for purposes other than as part of their cash-management function.
D)The working capital management policies of companies vary so an item may be considered very liquid in one company and not in another.
Q2) Identify and discuss the three classifications of the statement of cash flows.
Q3) IAS 7 requires disclosures about non-cash financing and investing activities.
A)True
B)False
Q4) A reporting entity is required to prepare a statement of cash flows that is in accordance with the requirements of IAS 7 and shall be presented as an integral part of the notes to the accounts.
A)True
B)False
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Chapter 17: Events Occurring After the Reporting Date
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Q1) Provide an example of an adjusting event and explain why this event satisfies the criteria of IAS 10 Events After the Reporting Period.
Q2) If it becomes known after reporting date that a debtor is now not able to pay a material amount that is owed to the reporting entity,the appropriate action according to IAS 10 is to:
A)Adjust the balance of accounts receivable and write off the bad debt and make a note disclosure that this event occurred after reporting date.
B)Adjust the balance of accounts receivable and write off the bad debt.
C)Disclose the event in the notes to the accounts.
D)Do nothing this period but write the debt off in the accounts for the next period.
Q3) Bonus payments that are part of an existing agreement with employees determined after the reporting date is an example of an adjusting event.
A)True B)False
Q4) Explain the period covered by IAS 10 Events After the Reporting Period and discuss how the period covered is determined.
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Chapter 18: Related-Party Disclosures
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Q1) IAS 24 requires disclosure of:
A)all material related-party transactions only.
B)all material transactions with directors and its close family members.
C)all material related-party transactions except those derived by virtue of normal dealings with a customer.
D)all material related-party transactions only and all material transactions with directors and its close family members.
Q2) Some business leaders argue that related-party transactions have benefits for the reporting entity.The benefits are said to include:
A)lower legal costs associated with contracts.
B)increased profits for the related entity.
C)reduced competition among suppliers.
D)better, more reliable service and better prices.
Q3) IAS 24 requires an entity to disclose total compensation of key management personnel.What items are included in key management personnel's remuneration/compensation?
Q4) What is the rationale for disclosing related-party transactions with key management personnel regardless of its materiality?
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Chapter 19: Earnings Per Share
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Q1) Describe how the calculation of a basic EPS will be affected by a bonus issue that is in accordance with IAS 33 Earnings per Share.
Q2) Phlox Plc has a profit after tax of £6 590 000 for the period ended 30 June 2015.Phlox Plc also has £1 000 000 of 6% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. As at 1 July 2014 there were 3 000 000 fully paid ordinary shares issued.Phlox Plc also has £1 500 000 in convertible debentures issued for the full year.It pays interest of 5% per annum and could be converted to 300 000 ordinary shares at the option of the debenture-holders.There are also 100 000 share options currently on issue with an exercise price of £1.30.The average market price for ordinary shares during the year was £2.70.The tax rate is 33%.What are the diluted earnings per share for Phlox Plc in accordance with IAS 33?
A)£1.92
B)£1.95
C)£1.97
D)£2.20
Q3) Describe the IAS 33 EPS disclosure requirements.
Q4) Discuss when potential ordinary shares are excluded from the calculation of diluted EPS?
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Chapter 21: Further Consolidation Issues I: Accounting for
Intragroup Transactions
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Q1) Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts
Q2) What is the amount of unrealised profit that needs to be eliminated at the end of the period,in the following situation,where Morecombe Plc is the parent of Wise Plc? (Ignore the tax effect.)
Morecombe purchases 500 units of inventory for £20 each.Morecombe sells this entire inventory to Wise at a mark up of 25%.Wise then sells half of the inventory to an external party.Half of the remaining amount (after the external sale)is sold back to Morecombe for £2500.
A)cannot determine from the information given
B)£300
C)£625
D)£1250
Q3) IFRS 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation.This requirement is consistent with the parent entity concept of consolidation.
A)True
B)False
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Chapter 22: Further Consolidation Issues II: Accounting for
Non-Controlling Interests
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Q1) Discuss how the share capital and reserves of a non-controlling asset are determined at the date of the acquisition and post-acquisition changes in share capital and reserves.
Q2) Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?
A)A non-controlling interest is defined as a liability in a subsidiary not attributable, directly or indirectly, to a parent.
B)Under the entity concept, if subsidiaries are partly owned by the parent entity, both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary's profits, dividend payments, and share capital and reserves.
C)Under the entity concept, non-controlling interests will be shown as equity.
D)Under the proprietary concept, non-controlling interests will be shown as equity.
Q3) In adjusting for intragroup transactions prior to calculating non-controlling interests,describe the treatment of:
(a)intragroup service and interest payments; and (b)intragroup sales of inventory and non-current assets.
Q4) Describe the two options in measuring the non-controlling interest.
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Chapter 23: Further Consolidation Issues III: Accounting for
Indirect Ownership Interest
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Q1) When a parent acquires its interest in an intermediate subsidiary after the intermediate subsidiary acquires an interest its own subsidiary,this is referred to as a non-sequential acquisition.
A)True
B)False
Q2) A Plc owns 80% of the issued capital of B Plc and B Plc owns 60% of the issued capital of C Plc.What is A's interest in C Plc?
A)32%
B)48%
C)60%
D)16%
Q3) It is possible for aggregated direct and indirect non-controlling interests in an entity to be a greater percentage of ownership than the parent's aggregated direct and indirect ownership interests.
A)True
B)False
Q4) Discuss how it is possible for one entity to control another entity without any direct ownership interest.
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Chapter 24: Accounting for Foreign Currency Transactions
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Q1) The Big Mac index is:
A)an indicator of the economic wealth of a country, applied to a capacity to purchase Big Macs with the average wage.
B)a measure of interest rate parity such that the exchange rates between countries can be compared to assess whether or not interest rates are too high or low in a particular country relative to other major currencies in the world.
C)a measure of purchasing power parity applied to a 'real' product that is essentially identical and available around the world.
D)a measure of interest rate parity such that the exchange rates between countries can be compared to assess whether or not interest rates are too high or low in a particular country relative to other major currencies in the world and a measure of purchasing power parity applied to a 'real' product that is essentially identical and available around the world.
Q2) How does the accounting treatment for qualifying monetary items differ from other foreign currency monetary items as prescribed under IAS 21 The Effects of Changes in Foreign Exchange Rates?
Q3) Describe,with examples,the two tests of hedge effectiveness.
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Chapter 25: Translating the Financial Statements of Foreign Operations
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Q1) The foreign exchange exposure of the parent entity in relation to its foreign operation relates to the net cash flows of the investment in the operation.
A)True
B)False
Q2) Outline the approach to be taken when translating the accounts of a foreign subsidiary; that is,the various rates to be used for the various components of the financial statements.
Q3) Explain at what exchange rate income and expenses of a foreign operation are generally translated,and the exception that exists to the 'general rule'.
Q4) When translating non-monetary liabilities into the functional currency,the translation rate used is:
A)the rate at date of valuation.
B)the closing rate.
C)the spot rate.
D)the average rate.
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Chapter 26: Accounting for Corporate Social Responsibility
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Q1) What are the social and financial reporting implications of discounting environmental related liabilities?
Q2) Sustainable development has commonly been defined as:
A)development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.
B)development that has continued at a consistent rate of growth over a period greater than 5 years.
C)development that can be financially supported over the mid to long term.
D)development that makes the most effective use of the resources available while balancing the needs of shareholders and other stakeholders for appropriate returns on their investment in the organisation (whether that be in terms of money or time).
Q3) The traditional view is that business entities are responsible for their financial performance and the impacts they have on stakeholders with whom they interact.
A)True
B)False
Q4) Discuss the Global Reporting Initiative's Sustainability Reporting Guidelines.
Q5) Discuss the concept of the 'community licence to operate'.
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