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QUIZZ C1

1.Which one of the following would be classified as a liability?

a. The company manufactures a product under licence. In 12 months'
time, the licence expires and the Company will have to pay $50,000 for
it to be renewed.
b. The company has estimated the tax charge on its profits for the year
just ended as $165,000.
c. The company is planning to invest in new machinery and has been
quoted a price of $570,000.
d. The company purchased an investment 9 months ago for $120,000.
The market for these investments has now fallen and Company's
investment is valued at $90,000.
2.Which of the following measurement base(s) should be used by an
entity according to the conceptual framework for financial reporting?
a. Value in use
b. Historical cost
c. Current cost
d. Any of the answer is correct
3.Changing the method of inventory valuation should be reported in the
financial statements under what qualitative characteristic of accounting
information?
a. Comparability
b. Timeliness
c. Consistency
d. Verifiability
4.What is the objective of general-purpose financial reporting?
a. to provide companies with the option to select information that favors
one set of interested parties over another.
 b. to provide a metric for financial information used to determine when the
boundary between two or more entities should be disregarded and the
entities considered to be a licensing arrangement
c. to provide financial information about the reporting entity that is useful to
present and potential equity investors, lenders, and other creditors in
making decisions in their capacity as capital providers
d. to provide users with financial information that implies total freedom
from error.
5.Which of the following statements is incorrect in relation to the
recognition criteria for elements of the financial statements?
a. Because equity is the arithmetic difference between assets and
liabilities, a separate recognition criteria for equity is not needed in the
conceptual framework.
b. Income is recognised when an increase in future economic benefits
related to a decrease in an asset or an increase in a liability that has
arisen can be measured reliably.
c. Assets are recognised when it is potential that future economic benefits
will flow to the entity and the asset has a cost or value that can be
measured reliably.
d. Liabilities are recognised when it is probable that an outflow of
resources embodying economic benefits will result from the settlement
of a present obligation and the amount at which settlement will take
place can be measured reliably.
6.Which of the following is a fundamental quality of useful accounting
information?
a. Neutrality
b. Materiality
c. Comparability
d. Relevance
7.Which of the following is not true concerning a conceptual framework
in accounting?
a. It should be a basis for standard-setting
b. It should allow practical problems to be solved more quickly by
reference to it
c. It should be based on fundamental truths that are derived from the laws
of nature
d. All of these answers are correct
8.Which of the following statements in relation to income is true?
a. Gains and revenue are different in nature and therefore are recognised
as separate elements of the financial statements per the conceptual
framework.
b. The conceptual framework requires that all items of income are reported
on a net basis.
 c. Gains are normally reported separately from revenue in the Statement
of profit or loss and other comprehensive income due to the different
probabilities attached to that type of income.
d. The conceptual framework defines income as an increase in economic
benefits which results in an increase in equity.
9.What is meant by comparability when discussing financial accounting
information?
a. Information is reasonably free from error
b. Information is timely
c. Information has predictive or feedback value
d. Information that is measured and reported in a similar fashion across
companies
10.Which of the following basic elements of financial statements is more
associated with the statement of financial position than the income
statement?
a. Income
b. Gains
c. Expenses
d. Equity
11.Comparability is identified as an enhancing qualitative characteristic
in the IASB's Conceptual Framework for Financial Reporting. Which of
the following does NOT improve comparability?
a. Prohibiting changes of accounting policy unless required by an IFRS or
to give more relevant and reliable information
b. Disclosing discontinued operations in financial statements
c. Restating the financial statements of previous years when there has
been a change of accounting policy
d. Applying an entity's current accounting policy to a transaction which an
entity has not engaged in before
12.Which of the following best describes the role of the IFRS Advisory
Coucil?
a. To prepare intepretations of International Accounting Standards
b. To provide the IASB with the views of its members on standard setting
projects
c. To promote the use of International Accounting Standards amongst its
members
d. To select the members of the IASB
13.Which of the following accounting treatments correctly applies the
principle of faithful representation?
a. Allocating part of the sales proceeds of a motor vehicle to interest
received even though it was sold with 0% (interest free) finance
 b. Excluding a subsidiary from consolidation because its activities are not
compatible with those of the rest of the group
c. Reporting a transaction based on its legal status rather than its
economic substance
d. Recording the whole of the net proceeds from the issue of a loan note
which is potentially convertible to equity shares as debt (liability)
14.Which of the following is a fundamental quality of useful accounting
information?
a. Consistency
b. Conservatism
c. Faithful representation
d. Comparability
15.Which of the bodies listed below is responsible for revewing
International Accounting Standards and issuing guidance on their
application?
a. IFRS Foundation
b. International Accounting Standards Board
c. IFRS Advisory Council
d. IFRS Intepretation Committee
16.Company A issuing its annual financial reports within one month of
the end of the year is an example of which enhancing quality of
accounting information?
a. Verifiability
b. Comparability
c. Understandability
d. Timeliness
17.The International Accounting Standards Board’s (IASB’s) Conceptual
Framework includes all of the following except:
a. Supplementary information
b. Elements of financial statements
c. Qualitative characteristics of accounting information
d. Objective of financial reporting
18.The conceptual framework for financial reporting lists the qualitative
characteristics of financial statements.(i) Comparability;(ii) Verifiability;
(iii) Timeliness;(iv) Understandability;(v) Relevance;(vi) Faithful
representation. Which two of the above are not included in the
enhancing qualitative characteristics listed by the conceptual
framework?
a. (ii) and (v)
b. (iv) and (v)
c. (i) and (vii)
d. (v) and (vi)
19.What is a purpose of having a conceptual framework?
a. To make sure that economic activity can be identified with a particular
legal entity
b. To segregate activities among competing companies
c. To enable the profession to more quickly solve emerging practical
problems and to provide a foundation from which to build more useful
standards
d. To provide comparable information for different companies
20.Which of the following is a possible advantage of a rules-based
system of financial reporting?
a. It prevents a fire-fighting approach to the formulation of standards
b. It ensures that no standards conflict with each other
c. It offers accountants more protection in the event of litigation
d. It encourages the exercise of professional judgement

QUIZZ C2

1.A company bought a property 4 years ago from 1 Jan for $170,000.
Since then property prices have risen substantially and the property has
been revalued at $210,000. The property was estimated as having a
useful life of 20 years when it was purchased. What is the balance on the
revaluation surplus reported in the statement of financial position?
a. $210,000
b. $136,000
c. $34,000
d. $74,000
2.Solar Products purchased a computer for $13,000 on July 1, 2018. The
company intends to depreciate it over 4 years using the double-
declining balance method. Residual value is $1,000. Depreciation for
2018 is
a. $3,250
b. $3,000
c. $6,500
d. $4,875
3.A company sells machine B for $50,000 cash on 30 Apr 20X4. Machine
B cost $100,000 when it was purchased and has a carrying value of
$65,000 at the date of disposal. What are the journal entries to record the
disposal of machine B?
a. Dr Accumulated depreciation: $35,000; Dr Loss on disposal (SPL):
$15,000; Dr Cash: $50,000 / Cr Non-current assets – cost: $100,000
 b. Dr Accumulated depreciation: $35,000; Dr Cash: $50,000 / Cr Non-
current assets – cost: $65,000; Cr Profit on disposal (SPL): $20,000
c. Dr Accumulated depreciation: $35,000; Dr Non-current assets – cost:
$65,000 / Cr Profit on disposal (SPL): $50,000; Cr Cash: $50,000
d. Dr Accumulated depreciation: $65,000; Dr Loss on disposal (SPL):
$35,000 / Cr Non-current assets – cost: $100,000
4.Which of the following is not a capital expenditure?
a. An addition
b. A replacement
c. A betterment
d. Repairs that maintain an asset in operating condition
5.The carrying value of a company’s non-current assets was $200,000 at
August 20X0. During the year ended 31 Jul 20X1, the company sold non-
current assets for $25,000 on which it made a loss of $5,000. The
depreciation charge for the year was $20,000. What was the carrying
value of non-current assets at 31 Jul 20X1?
a. $150,000
b. $155,000
c. $160,000
d. $180,000
6.In an exchange with commercial substance, Huang Company traded
equipment with a cost of $8,200,000 and book value of $3,120,000 and
gave $4,698,000 cash. The old machine had a fair value of $2,960,000.
Which of the following journal entries would Huang make to record the
exchange?
a. Dr Accumulated Depreciation: 5,080,000; Dr Equipment: 7,818,000/ Cr
Equipment: 8,200,000; Cr Cash: 4,689,000
b. Dr Equipment: 7,658,000; Dr Accumulated Depreciation: 542,000/ Cr
Equipment: 8,200,000
c. Dr Equipment: 8,208,000 / Cr Equipment: 8,200,000; Cr Cash: 8,000
d. Dr Equipment: 7,658,000; Dr Loss on disposal: 160,000; Dr
Accumualted Depreciation: 5,080,000 / Cr Equipment: 8,200,000; Cr
Cash: 4,689,000
7.Which of the following statements are correct? 1/ IAS 16 Property,
plant and equipment requires entities to disclose the purchase date of
each asset. 2/ The carrying amount of a non-asset is the cost or
valuation of that asset less accumulated depreciation. 3/ IAS 16
Property, plant and equipment permits entities to make a transfer from
the revaluation surplus to retained earnings for excess depreciation on
revalued assets. 4/ Once decided, the useful life of a non-current asset
should not be changed.
a. 1, 2 and 3
b. 1, 2 and 4
c. 2 and 3
d. 2 and 4
8.Plant assets purchased on long-term credit contracts should be
accounted for at:
a. The total value of the future payments.
b. The future amount of the future payments.
c. The present value of the future payments.
d. None of these answer choices are correct.
9.Which one of the following would occur if the purchase of computer
stationary was debited to the computer equipment at cost account?
a. An overstatement of profit and an understatement of non-current assets
b. An overstatement of profit and an understatement of non-current assets
c. An overstatement of profit and an overstatement of non-current assets
d. An understatement of profit and an overstatement of non-current assets
10.Ferguson Company purchased a depreciable asset for $100,000. The
estimated residual value is $10,000, and the estimated useful life is 10
years. The straight-line method will be used for depreciation. What is the
depreciation base of this asset?
a. $100,000
b. $90,000
c. $9,000
d. $10,000
11.Which one of the following statements correctly defines non-current
assets?
a. Assets which are intended to be used by the business on a continuing
basic, including both tangible and intangible assets that do not meet the
IASB definition of a current asset
b. Assets in the form of materials or supplies to be consumed in the
production process
c. Non-monetary assets without physical substance that are controlled by
the entity and from which future benefits are expected to flow
d. Assets that are held for use in the production of goods or services and
are expected to be used during more than one accounting period
12.W bought a new printing machine. The cost of machine was $80,000.
The installation cost was $5,000 and the employees received training on
how to use the machine, at a cost of $2,000. Before using the machine to
print customer’s order, a test was undertaken and the paper and ink cost
$1,000. What should be the cost of the machine in the company’s
statement of financial position?
a. $85,000
b. $88,000
c. $80,000
d. $86,000
13.Which of the following should be disclosed for tangible non-current
assets according to IAS 16 Property, plant and equipment? 1/
Depreciation methods used and the total depreciation allocated for the
period. 2/ A reconciliation of the carrying amount of non-current assets
at the beginning and end of the period. 3/ For revalued assets, whether
an independent valuer was involved in the valuation. 4/ For revalued
assets, the effective date for the revaluation
a. 1, 2 and 4
b. 1 and 2
c. 1, 2, 3 and 4
d. 1, 3 and 4
14.B acquired a lorry on 1 May 20X0 at a cost of $30,000. The lorry has
an estimated useful life of four years, and an estimated resale value at
the end of that time of $6,000. B charges depreciation on the straight line
basis, with a proportionate charge in the period of acquisition. What will
the depreciation charge for the lorry be in B’s accounting period to 30
Sept 20X0?
a. $3,000
b. $5,000
c. $2,000
d. $2,500
15.Peterson Company purchased machinery for $160,000 on January 1,
2015. Straight-line depreciation has been recorded based on a $10,000
salvage value and a 5-year useful life. The machinery was sold on May 1,
2019 at a gain of $3,000. How much cash did Peterson receive from the
sale of the machinery?
a. $43,000
b. $27,000
c. $33,000
d. $23,000
16.Ecker Company purchased a new machine on May 1, 2010 for
$176,000. At the time of acquisition, the machine was estimated to have
a useful life of ten years and an estimated salvage value of $8,000. The
company has recorded monthly depreciation using the straight-line
method. On March 1, 2019, the machine was sold for $24,000. What
should be the loss recognized from the sale of the machine?
a. $11,600.25
b. $3,600
c. $0
d. $8,000
17.The sale of a depreciable asset resulting in a loss indicates that the
proceeds from the sale were:
a. Less than current fair value.
b. Less than book value.
c. Greater than cost.
d. Greater than book value.
18.What is the purpose of charging depreciation in accounts?
a. To reduce the cost of the asset in the statement of financial position to
its estimated market value
b. To ensure that funds are available for the eventual replacement of the
asset
c. To account for the ‘wearing out’ of the asset over its life
d. To allocate the cost of a non-current asset over the accounting periods
expected to benefit from its use
19.Worthington Chandler Company purchased equipment for $10,000.
Sales tax on the purchase was $500. Other costs incurred were freight
charges of $200, repairs of $350 for damage during installation, and
installation costs of $225. What is the cost of the equipment?
a. $10,925
b. $10,000
c. $10,500
d. $11,275
20.The term "depreciable base," or "depreciation base," as it is used in
accounting, refers to
a. The acquisition cost of the asset.
b. The total amount to be charged (debited) to expense over an asset's
useful life.
c. The estimated fair value of the asset at the end of its useful life.
d. The cost of the asset less the related depreciation recorded to date.

QUIZZ C3
1. IAS 36 presumes that budgets and forecasts while arriving at cash
flow projections should be…
a. not more than three years
b. not more than ten years
c. more than ten years
d. not more than five years
2.When should a reversal of a goodwill impairment be recognised?
a. Immediately
b. At management’s discretion
c. At the end of the accounting period
d. Never
3.If the fair value less costs to sell for an asset cannot be determined,
then recoverable amount is its…
a. Replacement value
b. Market value
c. Value in use
d. Fair value
4.When an impairment loss occurs, the carrying amount of the asset
should be reduced to its ____
a. Value in use
b. Market value
c. Recoverable amount
d. Net present value
5.The amount, which an asset is recorded in the Statement of Financial
Position, less any accumulated depreciation and impairment losses, is
called…
a. Net realisable value
b. Fair value
c. Carrying amount
d. Present value
6.How often should a cash generating unit to which goodwill has been
assigned, be tested for impairment?
a. At management’s discretion
b. Every year
c. As often as practicable
d. Every six months
7.When a cash-generating unit has an impairment loss, the loss must
first be applied to…
a. against all assets on a pro-rata basis
b. any assets obviously impaired
c. on the entire cash generating unit on a pro-rata basis
 d. goodwill
8.When the recoverable amount of an asset is less than its carrying
value in the Statement of Financial Poisition, the asset is…
a. impaired
b. in a revaluation deficit
c. in negative equity
d. flawed
9.An asset is said to be impaired if…
a. Its carrying amount exceeds its net discounted cash inflows
b. Its carrying amount is less than its market value
c. Its carrying amount exceeds its recoverable amount
d. Its recoverable amount exceeds its carrying amount
10.Under IAS 36, when it is not possible to calculate the recoverable
amount of a single asset, what should be done?
a. The value should remain unchanged
b. A disclosure should be provided in the notes to the financial statements
c. The recoverable amount of its cash generating unit should be calculated
d. A rough estimate should be provided
11.Which of the following is an external indication of impairment?
a. Ongoing losses
b. Decline in market value
c. Damage to an asset
d. Management commitment to undergo a restructuring
12.What is the treatment of an impairment loss under IAS 36?
a. Record it in Equity under “Revaluations”
b. Record a liability in the SOFP for “Impairment losses”
c. Write it off against profit over a defined period agreed by management
d. Write it off against profit immediately
13.When should a reversal of an impairment loss be recognised?
a. Never
b. None of these
c. Immediately
d. When approved by the board of directors
14.Which of the following is not covered by IAS 36 – Impairment?
a. Intangible assets
b. Property, Plant and Equipment
c. Motor Vehicles
d. Inventory
15.In measuring Value in Use, the discount rate used for discounting the
cash flows should be the….
 a. Pre-tax rate that reflects the market assessment of time value of money
and risks specific to the entity’s competitors
b. Post-tax rate that reflects the entity’s assessment of time value of
money and risks specific to the asset
c. Pre-tax rate that reflects the entity’s assessment of time value of money
and risks specific to the asset
d. Pre-tax rate that reflects the market assessment of time value of money
and risks specific to the asset
16.The present value of expected future cash flows generated by an
asset, plus its expected disposal value is called…
a. Market value
b. Net present value
c. Value in use
d. Fair value
17.A cash-generating unit is defined as…
a. the smallest identifiable group of assets that generates cash inflows that
are largely independent from the cash inflows of other assets.
b. the easiest identifiable group of assets that generates cash inflows that
are largely independent from the cash inflows of other assets
c. the smallest identifiable group of assets that generates cash outflows
that are largely independent from the cash outflows of other assets
d. the largest identifiable group of assets that generates cash inflows that
is largely independent from the cash inflows of other assets.
18.The carrying amount of an asset is defined under IAS 36 as…
a. The amount at which an asset is recognised after adding any
accumulated depreciation and accumulated impairment losses
b. The amount at which an asset is recognised after deducting any
accumulated depreciation and adding back any accumulated
impairment losses
c. The amount at which an asset is recognised after adding any
revaluation gains and accumulated impairment losses
d. The amount at which an asset is recognised after deducting any
accumulated depreciation and accumulated impairment losses
19.When should an impairment loss be recognised?
a. Over a number of accounting periods
b. When requested by the entity’s auditors
c. Immediately
d. At management’s discretion
20.Value in use is…
a. The discounted present value of historical cash flows expected to arise
from continuing use of asset, and from its disposal at the end of its
useful life.
 b. The undiscounted future value of present cash flows expected to arise
from continuing use of asset, and from its disposal at the end of its
useful life.
c. The discounted future value of future cash flows expected to arise from
continuing use of asset, and from its disposal at the end of its useful life
d. The discounted present value of future cash flows expected to arise
from continuing use of asset, and from its disposal at the end of its
useful life

QUIZZ C4

1.ABC Ltd. owns a property which has two parts, part A and part B. Part
A is used to earn rental income; Part B is used for administrative
purpose. These two parts cannot be sold separately. How should ABC
classify this property?
a. Entire property should be classified as Investment property if the portion
of B is insignificant
b. Part A should be classified as Investment property; part B should be
classified as Owner-occupied property
c. Part A should be classified as Investment property; part B should be
classified as Inventories
d. Entire property should be classified as Owner-occupied property if the
portion of B is significant
2.Choose the correct statement::
a. Fair value of investment property carried under cost model should be
disclosed in the Statement of financial position.
b. Fair value of investment property carried under cost model should not
be disclosed in any financial statement.
c. Fair value of investment property carried under cost model should be
disclosed in the Statement of Other Comprehensive Income.
d. Fair value of investment property carried under cost model should be
disclosed in the Disclosure note.
3.ABC Ltd. chooses fair value model for its investment property. At 1
Jan 20X8, ABC Ltd. transferred an investment property to an owner-
occupied property. Investment property has originally cost of $20
million; accumulated depreciation up to the date of transfer was $12
million, there was no impairment loss; property’s fair value at 1 Jan 20X8
was $14 million. What was the carrying value of the Owner-occupied
property recorded at 1 Jan 20X8?
a. $8 million
b. $14 million
c. $2 million
 d. $12 million
4.An entity purchased land and building for leasing out under operating
lease. Following expenditures related to the acquisition: purchase price:
100; broker’s commission: 10; property transfer tax: 20. What is the cost
of the property?
a. 130
b. 110
c. 100
d. 120
5.ABC Ltd. chooses cost model for its investment property. It sold an
investment property that originally cost $20 million. The selling price
was $6 million. Depreciation of $12 million had been recorded up to the
date of sale. There was no accumulated impairment loss. What does this
disposal result in?
a. $14 million loss
b. $2 million loss
c. $14 million gain
d. $2 million gain
6.ABC Ltd. chooses cost model for its investment property. At 1 Jan
20X8, ABC Ltd. transferred an investment property to an owner-occupied
property. Investment property has originally cost of $20 million;
accumulated depreciation up to the date of transfer was $12 million,
there was no impairment loss; property’s fair value at 1 Jan 20X8 was
$14 million. What was the carrying value of the Owner-occupied property
recorded at 1 Jan 20X8?
a. $14 million
b. $2 million
c. $8 million
d. $12 million
7.Entity measures its investment property under:
a. Cost model, fair value model or revaluation model
b. Cost model only
c. Cost model or Fair value model
d. Cost model or Revaluation model
8.ABC Ltd. owns a property which has two parts: part A and part B. Part
A is used to earn rental income; Part B is used for administrative
purpose. Each part can be sold separately. How should ABC classify
this property?
a. Part A should be classified as Investment property; part B should be
classified as Inventories
 b. Part A should be classified as Investment property; part B should be
classified as Owner-occupied property
c. Entire property should be classified as Owner-occupied property if the
portion of B is significant
d. Entire property should be classified as Investment property if the portion
of B is insignificant
9.Which of the following should be classified as Investment property?
a. Land and building held to earn rental income
b. An equipment held to earn rental income
c. Property being constructed on behalf of third parties.
d. Land and building held for sale in the ordinary course of business
10.Which of the following should be classified as Investment property?
a. Land and building held for long-term capital appreciation
b. Land and building held for administrative purposes.
c. Land and building held for used in the production of goods
d. Land and building held for short-term sale in the ordinary course of
business

QUIZZ C5

1.Which of the following methods of amortization is normally used for

intangible assets?
a. Sum-of-the-years'-digits
b. Double-declining-balance
c. Straight-line
d. Units of production
2.Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500
shares of Mini Corp.’s €5 par value ordinary shares and €85,000 cash.
When the patent was initially issued to Maxi Co., Mini Corp.’s shares
were selling at €7.50 per share. When Mini Corp. acquired the patent, its
shares were selling for €9 a share. Mini Corp. should record the patent at
what amount?
a. €103,750
b. €85,000
c. €107,500
d. €97,500
3.Short Corporation purchased Hathaway Co. for $52,000,000. The fair
value of all Hathaway's identifiable tangible and intangible assets was
$48,000,000. Short will amortize any goodwill over the maximum number
of years allowed. What is the annual amortization of goodwill for this
acquisition?
 a. $400,000.
b. $100,000.
c. 0.
d. $200,000.
4.IFRS requires that start-up costs and initial operating losses during the
early years be capitalized.
a. True
b. False
5.According to IAS 38 Intangible assets, which of the following are
intangible non-current assets in the accounts of Ita Co? 1. A patent for a
new glue purchased for $20,000 by Ita Co; 2. Development costs
capitalized in accordance with IAS 38; 3. A licence to broadcast a
television series, purchased by Ita Co for $150,000; 4. A state of the art
factory purchased by Ita Co for $1.5 million.
a. 1, 2 and 3
b. 2 and 4
c. 2, 3 and 4
d. 1 and 3
6.Cromartie LTD. prepares its financial statements according to
International Financial Reporting Standards. During 2013 the company
incurred $1,245,000 in research expenditures to develop a new product.
An additional $756,000 in development expenditures were incurred after
technological and commercial feasibility was established and after the
future economic benefits were deemed probable. The project was
successfully completed and the new product was patented before the
end of the 2013 fiscal year. Sale of the product began in 2014. What
amount of the above expenditures would Cromartie expense in its 2013
income statement?
a. $1,245,000.
b. $756,000.
c. $2,001,000.
d. $0.
7.The intangible asset goodwill may be
a. written off directly to retained earnings.
b. capitalized only when created internally.
c. capitalized only when purchased.
d. capitalized either when purchased or created internally.
8.Goodwill is:
a. None of the above.
b. Amortized over the greater of its estimated life or forty years.
 c. The excess of the fair value of a business over the fair value of all net
identifiable assets.
d. Only recorded by the seller of a business.
9.An exclusive 20-year right to manufacture a product or use a process
is a:
a. Copyright.
b. Trademark.
c. Franchise.
d. Patent.
10.If a new patent is acquired through modification of an existing patent,
the remaining book value of the original patent may be amortized over
the life of the new patent.
a. True
b. False
11.Which of the following costs should be capitalized in the year
incurred?
a. Organizational costs.
b. Costs to successfully defend a patent.
c. Costs to internally generate goodwill.
d. Development costs.
12.According to IAS 38 Intangible assets, which of the following
statements about research and development expenditure are correct?
1.Research expenditure, other than capital expenditure on research
facilties, should be recognised as an expense as incurred; 2.In deciding
whether development expenditure qualifies to be regconised as an
asset, it is necessary to consider whether there will be adequate finance
available to complete the project; 3.Development expenditure
regconised as an asset must be amortised over a period not exceeding
five years.
a. 1, 2
b. 1, 2, 3
c. 2, 3
d. 1,3
13.Which of the following intangible assets should be shown as a
separate item on the statement of financial position?
a. Goodwill
b. Patent
c. Franchise
d. Trademark
14.Rich Corporation purchased a limited-life intangible asset for
€270,000 on May 1, 2017. It has a useful life of 10 years. What total
amount of amortization expense should have been recorded on the
intangible asset by December 31, 2019?
a. €54,000
b. €81,000
c. €0
d. €72,000
15.Impairment testing is conducted annually for both limited–life and
indefinite-life intangible assets.
a. False
b. True
16.Depreciation, depletion, and amortization:
a. All of the above are correct.
b. All refer to the process of allocating the cost of long-term assets used in
the business over future periods.
c. All generally utilize the same methods of cost allocation.
d. Are all handled the same in arriving at taxable income.
17.The legal life of a patent is generally:
a. Twenty years.
b. Indefinite.
c. Forty years.
d. Life of the inventor plus fifty years.
18.Under International Financial Reporting Standards, research
expenditures are:
a. Expensed if unsuccessful, capitalized if successful.
b. Expensed in the period incurred.
c. Capitalized if certain criteria are met.
d. Expensed in the period they are determined to be unsuccessful.
19.Which of the following does not describe intangible assets?
a. They are monetary assets.
b. They lack physical existence.
c. They provide long-term benefits.
d. They are classified as long-term assets.
20.n January of 2013, Vega Corporation purchased a patent at a cost of
$200,000. Legal and filing fees of $50,000 were paid to acquire the
patent. The company estimated a 10-year useful life for the patent and
uses the straight-line amortization method for all intangible assets. In
2016, Vega spent $40,000 in legal fees for an unsuccessful defense of
the patent. The amount charged to income (expense and loss) in 2016
related to the patent should be:
a. $65,000.
b. $215,000.
 c. $25,000.
d. $40,000.

QUIZZ C6

1.The lease of land and buildings when split causes difficulty in the
allocation of the minimum lease payments. In this case the minimum
lease payments should be split

a. According to any fair method devised by the entity.

b. By the entity based on the useful life of the two elements.
c. According to the relative fair value of two elements.
d. Using the sum of the digits method.

2.The classification of a lease as either an operating or finance lease is

based on

a. The minimum lease payments being at least 50% of the fair value.
b. The length of the lease.
c. The transfer of the risks and rewards of ownership.
d. The economic life of the asset.

3.Which situation leads to a lease being classified as finance by the

lessor in line with IFRS 16?

a. The lease term is for at least 50% of asset’s economic life.

b. There is an option to purchase the asset at the price equal to its fair
value at the end of the lease term.
c. Ownership is transferred to the lessee by the end of the lease term.
d. The lessor does not classify the lease under IFRS 16 anymore.

4.What is the most important factor to decide how to account for the sale
& leaseback transaction?

a. Whether the sales price is at fair value, above fair value or below fair
value.
b. Whether the lease payments are at market rentals, below market or
above market.
c. Whether the transfer of asset is a sale under IFRS 15 Revenue from
Contracts with Customers.
 d. Whether the resulting lease is operating or finance.

5.Where there is a lease of land and buildings and the title to the land is
not transferred, generally the lease is treated as if

a. The land is a finance lease, the building is an operating lease.

b. The land is a finance lease, the building is a finance lease.
c. The land is an operating lease, the building is an operating lease.
d. The land is an operating lease, the building is a finance lease.

6.The arrangement contains a lease when the customer has the

following right throughout the period of use:

a. The right to obtain the asset’s by-products

b. The right to control the use of an identified asset
c. The right to design an identified asset
d. The protective right to an identified asset

7.Which item is NOT included in the lease payments?

a. Penalties for terminating the lease

b. Variable payments NOT depending on an index or a rate
c. Variable payments depending on an index or a rate
d. Residual value guarantees

8.At the commencement of the lease, IFRS 16 requires lessee to:

a. Classify the lease as either finance and operating

b. Recognize the right-of-use asset and the lease liability
c. Assess if the contract contains the lease. The accounting starts at the
inception date.
d. Recognize the underlying asset under IAS 16 or IAS 38, and the finance
lease liability

9.When there is a change in the lease term, the lessee needs to:

a. Remeasure the lease liability as an adjustment of the right-of-use asset,

by discounting the revised lease payments by the revised discount rate.
 b. Remeasure the lease liability as an adjustment of the right-of-use asset,
by discounting the revised lease payments by the unchanged discount
rate.
c. Remeasure the lease liability with difference recognized in profit or loss,
by discounting the revised lease payments by the unchanged discount
rate.
d. Remeasure the lease liability with difference recognized in profit or loss,
by discounting the revised lease payments by the revised discount rate.

10.At the commencement of the lease, IFRS 16 requires lessee to:

a. Assess if the contract contains the lease. The accounting starts at the
inception date.
b. Recognize the right-of-use asset and the lease liability
c. Recognize the underlying asset under IAS 16 or IAS 38, and the finance
lease liability
d. Classify the lease as either finance and operating

QUIZZ C7

1.A manufacturing company recognized a valuation provision to

inventories due to their obsolescence. Does IAS 1 allow offsetting
inventory valuation provision against inventory balance in the statement
of financial position:

a. Yes, because in this case, offsetting leads to better understanding of

the financial statements by their users
b. No, because IAS 1 states that assets and liabilities shall not be offset.
c. Yes, because IAS 1 specifically says that this situation is not offsetting.
d. No, because IAS 1 does not permit offsetting of assets and liabilities
unless is it allowed by another standard

2.Which of the following companies is a going concern?

a. A trading company is in serious liquidity problems and a court granted

an order to repay debt of CU 1 000 000 to a creditor immediately. The
company must sell its assets in order to settle this liability.
b. State-owned company runs out of cash and is not able to repay its
liabilities and salaries on time. According to applicable laws, the state
must provide a low-interest loan to this company.
c. A bank suffers in the mortgage crash and a state refuses to bail it out
d. Oil and gas company operating in Egypt has just received a court order
to close the factory and stop all operations in Egypt within 1 year
3.What components shall a complete set of financial statements
include?

a. Statement of financial position, income statement, statement of changes

in equity, statement of cash flows, accounting policies and notes,
annual report
b. Statement of financial position, statement of profit or loss and other
comprehensive income, statement of changes in equity, statement of
cash flows, accounting policies and notes.
c. Statement of financial position, statement of comprehensive income,
statement of changes in equity, statement of cash flows, annual report
d. Statement of financial position, statement of other comprehensive
income, statement of changes in equity, statement of cash flows,
directors report

4.What identification information does NOT need to be presented on the

face of the financial statements

a. Date of preparation of the financial statements.

b. Date of the end of the reporting period or the period covered by the set
of financial statements or notes
c. Whether the financial statements are individual or group.
d. The presentation currency and the level of rounding.

5.The example of a current liability is

a. Deferred tax liability.

b. Long-term loan that became payable due to breach of covenants. The
bank does NOT require immediate repayment and agrees with the
original repayment schedule.
c. Provision for warranty repairs within the second year of guarantee after
sale.
d. Trade payable with payment deferred beyond 1 year.

6.Dividends paid to ordinary shareholders shall be presented:

a. In the statement of profit or loss as other operating expense.

b. In the statement of other comprehensive income as a decrease in
equity
c. In the statement of profit or loss as a financial expense.
d. In the statement of changes in equity as a decrease in equity.

7.The example of a non-current asset is:

a. Deferred tax asset

 b. Government bond repayable in 3 months
c. Trade receivable
d. Inventories with long production and completion times

8.The example of a current asset is:

a. Deferred tax asset

b. Inventories with quick turnover.
c. Trade receivable with payment deferred beyond 1 year.
d. Available-for-sale financial assets.

9.IAS 1 permits to present expenses in the statement of profit or loss

and other comprehensive income in the classification

a. By segment and by operations

b. By segment and by function.
c. By segment and by nature.
d. By function and by nature

10.A company presented its expenses in the profit or loss as follows:

cost of sales, administrative expenses, marketing expenses, distribution
expenses and other expenses. This presentation is:

a. By operations
b. By function.
c. By segment.
d. By nature.

QUIZZ C11

1.A contract does not exist if …

Select one or more:

a. Each party to the contract has the unilateral enforceable right to

terminate a wholly unperformed contract without compensating the
other party
b. The contract was not approved in a written form
c. The parties of the contract have reached unanimous consent regarding
termination of the contract
d. The contract has no fixed duration and can be terminated or modified by
either party at any time

2.A contract is wholly unperformed if …

Select one or more:

a. The entity has not yet transferred any promised goods or services to the
customer
b. The entity has not yet received any consideration in exchange for
promised goods or services
c. The entity is not yet entitled to receive any consideration in exchange
for promised goods or services
d. All of the above
e. A and B

3.A performance obligation is satisfied over time if:

Select one or more:

a. The entity's performance creates an asset that the customer controls as

it is created
b. The customer does not receive or consume the benefits provided by the
entity's performance until the obligation is completely satisfied
c. The entity does not have an enforceable right to payment for the
performance that has been completed to date
d. The entity's performance creates an asset which has an alternative use
to the entity

4.A company enters into a contract to supply three distinct products to a

customer. The promise to supply each of these products is regarded as
a separate performance obligation. The stand-alone prices of the three
products (if sold singly) are:

Product X £12,500

Product Y £24,000

Product Z £27,500

The agreed contract price is £57,600. How should this price be allocated
to performance obligations?

Select one or more:

a. Product X £19,200

Product Y £19,200
 Product Z £19,200

b. Product X £12,500

Product Y £24,000

Product Z £27,500

c. Product X £11,250

Product Y £21,600

Product Z £24,750

d. Product X £10,367

Product Y £21,867

Product Z £25,366

5.An entity shall recognize a refund liability if the entity receives

consideration from a customer and expects to refund some or all of that
consideration to the customer.

a. True
b. False

6.If a contract with a customer provides a warranty, then the warranty

always represents a separate performance obligation and part of the
transaction price must be allocated to it. True or False?

a. True
b. False

7.Entity shall recognise revenue to depict the transfer of promised

goods or services to customers in the _________ amount that reflects
the consideration to which the entity expects to be entitled in exchange
for those goods or services

Select one or more:

a. cumulative
b. Residual
c. Net
 d. Gross

8.A company enters into a contract to build a factory for a customer. The
agreed price is £ 2 million (m) and the specified completion date is 31
October 2016. However, the contract provides that the company should
receive an incentive payment of a further £250,000 if the factory is
completed by 30 September 2016. Similarly, the price will be reduced by
£250,000 if the factory is not completed until after 30 November 2016.

The company estimates that there is a 15% probability that the factory
will be completed by 30 September 2016, an 80% probability that it will
be completed in October 2016 or November 2016 and a 5% probability
that it will not be completed until after 30 November 2016.

What is the expected value of the transaction price for this contract?

Select one or more:

a. 2.125m
b. 2.025m
c. 1.975m
d. 2m

9.A law firm enters into a contract to advise in a lawsuit for a client. If the
client wins, they will pay 2000 to the law firm. If not, the payment is 1500.

The law firm estimates that there is a 75% probability that the client will
win and 25% probability that it will lose in this lawsuit.

What is the expected value of the transaction price for this contract?

Select one or more:

a. 2000
b. 1875
c. 1500
d. 1250

10.Which of the following is an exception for application of IFRS 15?

Select one or more:

a. Lease contracts, Insurance contracts

b. Lease contracts
 c. Financial audit contracts
d. Insurance contracts, Pharmaceutical contracts

QUIZZ C8

1. Under IFRS, a voluntary change in accounting method may only be

made by a company if:

a. There is no prohibition of the method in the standards.

b. The new method provides reliable and more relevant information.
c. Management prefers the new method.
d. A new standard mandates the change in method

2. Applying a new policy to transactions other events and conditions as

if that policy had always been applied. This is:

a. Change in accounting estimate

b. Change in accounting policies
c. Retrospective restatement
d. Retrospective application

3. XYZ Inc. changes its method of valuation of inventories from

weighted-average method to first-in, first-out (FIFO) method. XYZ Inc.
should account for this change as

a. A change in accounting policy and account for it retrospectively.

b. Account for it as a correction of an error and account for it
retrospectively.
c. A change in estimate and account for it prospectively.
d. A change in accounting policy and account for it prospectively.

4. When a public shareholding company changes an accounting policy

voluntarily, it has to

a. Account for it retrospectively.

b. Treat it prospectively and adjust the effect of the change in the current
period and future periods.
c. Treat the effect of the change as an extraordinary item.
d. Inform shareholders prior to taking the decision.

5. Adjustment of the carrying amount of an asset or a liability or the

consumption of an asset. This defines:

a. Misstatements
b. A change in accounting policies
 c. Accounting policies
d. A change in accounting estimates

6. When it is difficult to distinguish between a change of estimate and a

change in accounting policy, then an entity should

a. Treat the entire change as a change in accounting policy.

b. Since this change is a mixture of two types of changes, it is best if it is
ignored in the year of the change; the entity should then wait for the
following year to see how the change develops and then treat it
accordingly.
c. Apportion, on a reasonable basis, the relative amounts of change in
estimate and the change in accounting policy and treat each one
accordingly.
d. Treat the entire change as a change in estimate with appropriate
disclosure.

7. When an independent valuation expert advises an entity that the

salvage value of its plant and machinery had drastically changed and
thus the change is material, the entity should

a. Change the annual depreciation for the current year and future years.
b. Retrospectively change the depreciation charge based on the revised
salvage value.
c. Change the depreciation charge and treat it as a correction of an error.
d. Ignore the effect of the change on annual depreciation, because
changes in salvage values would normally affect the future only since
these are expected to be recovered in future.

8.Specific principles bases conventions rules and practices applied in

presenting financial statements. This defines:

a. Accounting policies
b. Prospective application
c. Accounting estimates
d. accounting errors

9.Change in accounting policy does not include

a. Change of method of valuation of inventory from weighted-average to

FIFO.
b. Change in useful life from 10 years to 7 years.
c. Change of method of valuation of inventory from FIFO to weighted-
average.
 d. Change from the practice (convention) of paying as Christmas bonus
one month’s salary to staff before the end of the year to the new
practice of paying one-half month’s salary only.

10.Correcting the recognition measurement and disclosure of amounts

in financial statements as if a prior-period error had never occurred. This
is:

a. Retrospective application
b. Change in accounting estimate
c. Change in accounting policies
d. Retrospective restatement

QUIZZ C9

1. A non-adjusting event arising after the reporting date, but

management cannot estimate its financial effect. What disclosure is
required?

a.Provision

b.A note regarding an estimate cannot be made

c.Adjusting in the financial statement as an adjusting event after the reporting

period

d.No disclosure

2.According to IAS 10, what information should an entity disclose in the

notes to the financial statements?

a. The date when the financial statements were authorised for issue.
b. All of them
c. Who gave that the authorisation for issue
d. Information received after the reporting period

3.According to IAS 10, which of the following lists is considered as a

non-adjusting event after the reporting date.

a. The bankruptcy of a major customer that confirms that a year-end

receivable balance is irrecoverable.
b. The sale of inventories at a price lower than cost after the reporting
date.
c. Commencing a court case arising out of events after the reporting date.
 d. Discovery of errors that shows that the financial statements are
incorrect.

4.Company Lagia declared dividends to their shareholders on 31/3/20x.

The date of the financial statements was approved for issue was on
20/2/20x1. Which of the below is correct under IAS 10?

a. None of them
b. It is a non-adjusting event after the reporting date with disclosing
information in the note
c. It is an adjusting event after the reporting date
d. It is a non-adjusting event after the reporting date without any disclosure

5.Company Pender declared dividends to shareholders after the

reporting date of the year ended on 31/12/20x0 but before the date of the
financial statements were approved for issue. How should dividends be
recognised in the financial statements on 31/12/20x0?

a. Do nothing
b. A liability (*)
c. Disclosing in the notes (**)
d. (*) & (**)

6. The date that financial statements are authorised for issue may be
given by:

a. The procedures prescribed for the preparing and finalising of the

financial statements
b. The board of directors of the reporting entity
c. All of them
d. Statutory requirements

7.The management of Amboo Corp. was required to submit the financial

statements to the board of directors by 20/2/20x8. The board of directors
reviewed and authorised for them for issue on 01/3/20x8. The financial
statements were then approved by supervisory board on 18/3/20x8. On
20/3/20x8 these reports were sent to shareholders and regulatory body.
The authorized date for issue the financial statements was:

a. 20/2/20x8
b. 20/3/20x8
c. 01/3/20x8
d. 18/3/20x8
8.Under IAS 10, a non-adjusting event after the reporting period must be
disclosed in the notes if it is:

a. All of them
b. Cannot estimate its financial effect
c. Has influences on making decision of the financial statements’ users
d. Material

9.Which of the below is an adjusting event after the reporting period in

the financial statements under IAS 10?

a. The destruction of assets after the reporting date by flood.

b. The settlement of a court case which confirms a year-end obligation.
c. Major purchase of some tangible assets after the reporting date.
d. Declare dividends to shareholders after the reporting date.

10.Which of the following is the correct definition in accordance with IAS

10?

a.Events arising between the reporting date and the date of the financial
statements are authorised for issue that provide additional evidence of
conditions existing at the reporting date are considered as adjusting events.

b.Events arising between the reporting date and the date of the financial
statements are authorized for issue that are considered as adjusting events
after the reporting date.

c.Events arising between the reporting date and the date of the financial
statements are authorized for issue that are considered as non-adjusting
events after the reporting date.

d.Events arising between the reporting date and the date of the financial
statements are authorised for issue that must not disclosed information in the
note if they do not affect the situations at the reporting date.

QUIZZ C10

1.Which of the following statements about contingent assets and

contingent liabilities are correct? 1. A contingent asset should be
disclosed by note if an inflow of economic benefits is probable; 2. A
contingent liability should be disclosed by note if it is probable that a
transfer of economic benefits to settle it will be required, with no
provision being made; 3. No disclosure is required for a contingent
liability if it is not probable that a transfer of economic benefits to settle
it will be required; 4. No disclosure is required for either a contingent
liability or a contingent asset if the likelihood of a payment or receipt is
remote.

a. 1, 2 and 4
b. 2, 3 and 4
c. 2 and 3 only
d. 1 and 4 only

2. According to IAS 37, an onerous contract is:

a. A contract that was entered into under duress, or is concluded between

related parties under unfavourable market conditions.
b. A contract in which the unavoidable costs of meeting the obligations
under the contract exceed the unavoidable costs of meeting the
obligations of similar contract on the market
c. Any contract in which the net present value of cash flows is lower than
and the entity achieves future operating loss
d. A contract in which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be
received under it

3.Discount rates should be:

a. Pre-tax.
b. Pre-tax & post- tax
c. Post-tax.
d. Changed annually.

4. Which of the following is not a disclosure requirement for a

contingent liability?

a. Estimated financial effect

b. Exact timing of outflow
c. Indication of uncertainties relating to the amount
d. Possibility of any reimbursement

5.Contingent liabilities are:

a. Disclosed in the notes unless the possibility of an outflow of economic

benefits is remote
b. Recognised in the statement of financial position unless the possibility
of an outflow of economic benefits is remote
c. Always disclosed in the notes to the financial statements
d. Always recognised in the statement of financial position
6.According to IAS 37, a provision is:

a. A present obligation arising from past events.

b. A liability of uncertain timing or amount
c. A possible obligation arising from past events.
d. A liability of uncertain timing, amount and settlement.

7.According to IAS 37, a constructive obligation arises:

a. When an entity has indicated to other parties that it will accept certain
responsibilities and as a result, an entity has created a valid expectation
of those other parties that it will discharge those responsibilities.
b. As a result of a construction contract in line with IAS 11 Construction
contracts.
c. As a result of a contract, some legislation or other operation of law.
d. When an entity has created valid expectations in the affected parties
based on the previous experience, best practices or legislation.

8.D Co is a business that sells second hand cars. If a car develops a

fault within 30 days of the sale, D Co will repair it free of charge. At 30
Apr 20X4 D Co had made a provision for repairs of $2,500. At 30 Apr
20X5, it calculated that the provision should be $2,000. What entry
should be made for the provision in D Co’s statement of profit or loss for
the year to 30 Apr 20X5?

a. A charge of $2,000
b. A credit of $500
c. A credit of $2,000
d. A charge of $500

9.Which of the following items does the statement below describe? “A

possible obligation that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the entity’s control”

a. A provision
b. A contingent asset
c. A contingent liability
d. A current liability

10.Manufacturer of chemical products applies strong environmental

policy worldwide and undertakes to clean up the contaminated water
and land. This company causes an environmental damage in the country
A, in which there is no legislation that would oblige the company to
remove contamination. Should the company recognize provision for
cleanup costs in line with IAS 37?

a. No, because there is no obligation arising from past event.

b. Yes, because there is a legal obligation arising from past event.
c. No, because there is no legislation in the country A to enforce the
removal of contamination.
d. Yes, because there is a constructive obligation arising from past event
(contamination).

11.When a provision is needed that involves a number of outcomes, the

provision is calculated using the expected value of expenditure. The
expected value of expenditure is to total expenditure of:

a. Each possible outcome weighted according to the probability of each

outcome happening
b. Each possible outcome
c. Each possible outcome multiplied by the number of outcomes
d. Each possible outcome divided by the number of outcomes

12.A provision should be recorded when:

a. It is probable that payment will be required.

b. 1-3 are all present.
c. An estimate can be made of the obligation.
d. An undertaking has a present obligation legal, or constructive.

13.Mobile Co sells goods with a one year warranty under which

customers are covered for any defect that becomes apparent withing a
year of purchases. In calendar year 20X4, Mobile Co sold 100,000 units.
The company expects warranty claims for 5% of units sold. Half of these
claims will be for a major defect, with an average claim value of $50. The
other half of these claim will be for a minor defect, with an average claim
value of $10. What amout should Mobile Co include as a provision in the
statement of financial position for the year ended 31 Dec 20X4?

a. $125,000
b. $300,000
c. $25,000
d. $150,000

14.Wanda Co allows customers to return faulty goods within 14 days of

purchase. At 30 Nov 20X5 a provision of $6,548 was made for sales
returns. At 30 Nov 20X6, the provisions was re-calculated and should
now be $7,634. What should be reported in Wanda Co’s statement of
profit or loss for the year to 31 Oct 20X6 in respect of the provisions?

a. A credit of $7,634
b. A credit of $1,086
c. A charge of $1,086
d. A charge of $7,634

15.Which of the following best describes a provision according to of IAS

37 Provisions, contingent liabilities and contigent assets ?

a. A provision is a possible obligation of uncertain timing or amount

b. A provision is a liability of uncertain timing or amount
c. A provision is a credit balance set up to offset a contingent asset so that
the effect on the statement of financial position is nil.
d. A provision is a possible asset that arise from past events.

16. IAS 37 provisions include:

a. Doubtful debts.
b. Environmental provisions.
c. Impairment of assets.
d. Depreciation.

17.The following items have to be considered in finalizing the financial

statements of Q, a limited liability company: 1. The company gives
warranties on its products. The company’s statistics show that about 5%
of sales give rise to a warranty claim; 2. The company has guaranteed
the overdraft of another company. The likelihood of a liability arising
under the guarantee is assessed as possible. According to IAS 37
Provisions, contingent liabilities and contigent assets, what is the
correct action to be taken in the financial statements for these items?

a. 1,2: create a provision

b. 1: disclose by note only; 2: no action
c. 1: disclose by note only; 2: create a provision
d. 1: create a provision; 2: disclose by note only

18.A car manufacturer provides 2-year warranty related to all repairs of

its products. Should car manufacturer recognize the provision for
warranty repairs in line with IAS 37?

a. Yes, because there is a constructive obligation as a result of past event

(production of a defective car).
 b. No, because it is impossible to measure the amount that will be paid for
the repairs.
c. Yes, because a past event is a sale of a product with warranty and
based on past statistics a car manufacturer can assess the probability
of having to pay for the repairs and estimate the costs.
d. No, because at the time of sale, there is no present obligation to pay for
the repairs. Car manufacturer will need to pay only when there is some
claim from customers in the future.

19.Which of the following statements about the requirements of IAS 37

Provisions, contingent liabilities and contigent assets are correct? 1. A
contingent assets should be disclosed by note if an inflow of economic
benefits is probable; 2. No disclosure of contingent liability is required if
the possibility of a transfer of economic benefits arising is remote; 3.
Contingent assets must not be recognised in financial statements
unless an inflow of economic benefits is virtually certain to arise.

a. 2 and 3
b. All are correct
c. 1 and 2
d. 1 and 3

20.When shall the provision be recognized in line with IAS 37?

a. When all other conditions are met

b. When a reliable estimate can be made of the amount of the obligation
c. When an entity has a present obligation as a result of past event
d. When it is probable that the outflow of resources embodying economic
benefits will be required to settle the obligation

21.When a restructuring involves the sale of an operation, at what point

may an obligation arise under IAS 37?

a. When a preferred buyer is located

b. When business is marketed for sale
c. When a binding sale agreement is executed
d. When an expression of interest is filed

22. An ex-director of X Co has commenced an action against the

company claiming substantial damages for wrongful dismissal. The
company’s solicitors have advised that the ex-director is unlikely to
succeed with his claim, although the change of X paying any monies to
the ex-director is not remote. The solicitors’ estimates of the company’s
potential liabiltities are: Legal costs (to be incurred whether the claim is
successful or not) $50,000; Settlement of claim if successful $500,000.
According to IAS 37 Provisions, contingent liabilities and contigent
assets, how should this clasim be treated in the financial statements ?

a. Disclose a contingent liability of $550,000

b. Disclose a provision of $50,000 and a contingent liability of $500,000
c. Provision for $500,000 and a contingent liabilities of $50,000
d. A provision of $550,000

23.Which of the following is a restructuring cost under IAS 37?:

a. Relocation of staff
b. Relocation of business activities from one region to another
c. Marketing
d. Investment in new distribution networks

24.Which of the following statements about provisions and

contingencies is/are correct? 1.A company should disclosure details of
the changes in carrying value of a provisions from the beginning of the
end of the year; 2. Contingent assets must be recognised in the financial
statements in accordance with the prudence concept; 3. Contingent
liabilities must be treated as actual liabilities and provided for if it is
probable that they will arise.

a. 2 and 3 only
b. All three statements are correct
c. 1 and 3 only
d. 3 only

25. Contingent asset is recorded when cash inflows are:

a. Probable.
b. Received.
c. Uncertain
d. Virtually certain.

26.X Co sells goods with a one year warranty and had a provision for
warranty claims of $64,000 at 31 Dec 20X0. During the year ended 31 Dec
20X1, $25,000 in claims were paid to customers. On 31 Dec 20X1, X Co
estimated that the following claims will be paid in the following year
(Scenario, probability, anticipated cost): Worst case: 5%, $150,000; Best
case: 20%, $25,000; Most likely: 75%, $60,000. What amount should X Co
record in the statement of profit or loss for the year ended 31 Dec 20X1
in respect of the provision?

a. $57,500
 b. $18,500
c. $6,500
d. $39,000

27.M’s paint shop has suffered some bad publicity as a result of a

customer claiming to be suffering from skin rashes as a result of using a
new brand of paint sold by M’shop. The customer launched a court
action against M in Nov 20X3, claiming damages of $5,000. M’s lawyer
has advised him tha the most probable outcome is that he will have to
pay the customer $3,000. What amount should M include as a provision
in his accounts for the year ended 31 Dec 20X3?

a. $3,000
b. $nil
c. $8,000
d. $5,000

28. If the possibility of a penalty is remote:

a. Do nothing.
b. Disclosure a contingent liability.
c. Record a contingent liability.
d. Record a provision

29.If a provision relates to a large population of items, the amount of the

provision should be calculated as:

a. The expected value of the expenditure that will be required to settle the
obligation
b. The present value of the maximum expenditure that could possibly be
required to settle the obligation
c. The maximum expenditure that could possibly be required to settle the
obligation
d. The minimum expenditure that could possibly be required to settle the
obligation