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13 Cards in this Set
- Front
- Back
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Which of the following standards will allow companies to choose between capitalizing and expensing borrowing costs incurred during the construction of a fixed asset? a. US GAAP b. IFRS c. Both US GAAP and IFRS d. None of the above |
d. None of the above. Both US GAAP and IFRS will require capitalization of interest costs for qualifying assets. |
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Which of the following standards allows a company to revalue its PP&E after acquisition? a. US GAAP b. IFRS c. Both US GAAP and IFRS d. None of the above |
b. IFRS allows revaluation. US GAAP does not. |
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A French company reporting using IFRS purchased its only building on January 1, 2009, for€20,000,000. The building has a 20-year useful life with no net salvage value. The buildingis being depreciated on a straight-line basis. Assume the company intends to revalue thebuilding to its December 31, 2012, fair value of €17,000,000. What is the amount of theentry and the account affected to reflect this revaluation? a. €0 – No gain should be recorded. b. €3,000,000 Loss – should be record as expense in the income statement. c. €3,000,000 Gain – should be recorded in the income statement. d. €1,000,000 Gain – should be recorded in the income statement. e. €1,000,000 Gain – should be recorded as credit through OCI to revaluation surplus. |
e. €1,000,000 Gain - should be recorded as credit through OCI to revaluation surplus Fair value of €17,000,000 less net cost (€20,000,000 less €4,000,000 of accumulateddepreciation). The revaluation gain flows through OCI with a credit to revaluation surplusand should not flow through income. |
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A company owns a piece of equipment with a net cost of $30,000 (cost of $50,000 net ofaccumulated depreciation of $20,000). There are indicators that this equipment is impaired.The expected net future undiscounted cash flows are $31,000. The expected net futurediscounted cash flows are $28,000. The fair value of the equipment is $25,000 and sellingcosts are minimal. What is the impairment loss for the company using US GAAP? a. $0 b. $2,000 c. $5,000 d. None of the above |
a. $0 The expected net future undiscounted future cash flows exceed the net cost so no impairment is required. |
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A company owns a piece of equipment with a net cost of $30,000 (cost of $50,000 net ofaccumulated depreciation of $20,000). There are indicators that this equipment is impaired.The expected net future undiscounted cash flows are $31,000. The expected net futurediscounted cash flows are $28,000. The fair value of the equipment is $25,000 and sellingcosts are minimal. What is the impairment loss using IFRS? a. $0 b. $2,000 c. $5,000 d. None of the above |
b. $2,000 The impairment is the net cost of $30,000 less the recovery cost, which is the higherof the fair value or the expected net future discounted cash flows of $28,000 |
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A company uses the cost method for all of its fixed assets. A machine was purchased onJanuary 1, 2009, for $100,000. The company believes the machine will not have any netsalvage value at the end of its 10-year useful life. The machine is depreciated using thestraight-line depreciation method. At December 31, 2010, the machine is deemed impairedand written down by $24,000. At December 31, 2012, the fair value of the machine is$70,000 and selling costs are minimal. What is the recorded net value of this machine on December 31, 2012, using IFRS? a. $42,000 b. $60,000 c. $70,000 d. None of the above |
b. $60,000 The machine cannot be written up beyond what its original adjusted cost would havebeen: the cost of $100,000 less $40,000 of depreciation. |
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A company uses the cost method for all of its fixed assets. A machine was purchased on January 1, 2009, for $100,000. The company believes the machine will not have any net salvage value at the end of its 10-year useful life. The machine is depreciated using the straight-line depreciation method. At December 31, 2010, the machine is deemed impaired and written down by $24,000. At December 31, 2012, the fair value of the machine is $70,000 and selling costs are minimal. What is the recorded net value of this machine on December 31, 2012, using USGAAP? a. $42,000 b. $60,000 c. $70,000 d. None of the above |
a. $42,000 The adjusted cost would have been $100,000 less $20,000 in accumulateddepreciation less the $24,000 impairment, or $56,000. The $56,000 would have beendepreciated over the remaining eight-year life. The depreciation would have been$7,000 in both 2011 and 2012, resulting in a net cost of $42,000. |
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A company owns a building with a net asset value of $120,000 at December 31, 2011. Thebuilding had a five-year remaining life at December 31, 2011. The company also has arevaluation surplus balance of $50,000 in OCI related to this building at December 31,2011. The company sells this building on December 31, 2011, for $200,000. What is thegain to be recorded on this transaction? a. $80,000 b. $130,000 c. $200,000 d. None of the above |
a. $80,000 |
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A company acquires a bulldozer for $500,000. The useful life of the bulldozer is 10 years.The treads with a value of $50,000 will need to be replaced every five years. The blade hasa value of $20,000 and needs to be replaced every two years. At the end of year one whatwould be the minimum difference in depreciation expense using US GAAP and IFRS? a. Using a composite life of 10 years there would be no difference. Depreciation expensewould be $50,000 using both US GAAP and IFRS. b. Based on conservatism the bulldozer would be depreciated over 2 years for IFRS and10 years for US GAAP. Thus, the difference would be $200,000. c. The depreciation expense would be higher using US GAAP by $13,000. d. The depreciation would be higher using IFRS by $13,000. e. None of the above. |
e. None of the above. Component depreciation is acceptable using US GAAP and reacquired using IFRS, so there would be no difference. |
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What are the primary differences between US GAAP and IFRS related to capitalizing borrowing costs related to acquisition of an asset? a. With convergence, there will be no differences. b. Interest costs will be capitalized using US GAAP and expensed using IFRS. c. Investment income will be netted against interest expense using IFRS but not using USGAAP. d. Exchange rate differences are included in interest cost using IFRS but not using USGAAP. e. Both c. and d. |
e. Both c and d. The two primary differences are that IFRS allows netting of investment income againstinterest expense and exchange rate differences can be included in interest costs. |
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Subsequent to the original acquisition of PP&E, what valuation model is permitted by IFRS, but is prohibited using US GAAP? |
IAS 16 permits valuation of PP&E using the cost or the revaluation model. US GAAP doesnot permit revaluation. |
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Describe the primary difference between US GAAP and IFRS in accounting for the reversalof an impairment related to PP&E. |
US GAAP does not allow for the reversal of an impairment reserve on PP&E, while IFRSdoes permit it, subject to certain limitations. |
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Under IFRS, there exists an account referred to as the “revaluation surplus” account. a. What type of account is this and what is it used for? b. Is the normal account balance for this account a debit or credit? Can the account evercarry a balance that is not the normal account balance? |
a. The account is included in OCI. It is used to revalue property, plant and equipment. b. The normal account balance is a credit. No, the revaluation surplus cannot have a debitbalance. This is because downward revaluations are reported in net income and not OCIexcept to the extent that the devaluation is a reversal of a prior upward revaluation for thesame asset. |
