Which of the following disclosures is required for each class of PP&E carried under the cost model?
A. Remaining useful life
B. Gross carrying amount
C. Fair value and details of how it was obtained
Elegi C, era la B
Incorrect because disclosing how fair value was obtained is only required for classes of PP&E that are carried under the revaluation model instead of the cost model. Under IFRS, for each class of property, plant, and equipment, a company must disclose. If the revaluation model is used, the date of revaluation, details of how the fair value was obtained, the carrying amount under the cost model, and the revaluation surplus must be disclosed.
An analyst gathers the following information (in € millions) about a manufacturing company’s land reported under the revaluation model:
Purchase price and fair value on 1 January Year 1
20
Fair value at initial revaluation on 31 December Year 1
26
All else being equal and ignoring taxes, the revaluation at 31 December Year 1 leads to a:
A. higher quick ratio.
B. higher total asset turnover.
C. lower debt-to-assets ratio.
Es la C
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Based on your answer
Correct because the upward asset revaluation decreases the debt-to-asset ratio and therefore improves the debt-to-asset ratio / solvency ratio of the company. Debt-to-assets ratio = total debt / total assets. Under the revaluation model, whether an asset revaluation affects earnings depends on whether the revaluation initially increases or decreases an asset class’ carrying amount. If a revaluation initially increases the carrying amount of the asset class, the increase in the carrying amount of the asset class bypasses the income statement and goes directly to equity under the heading of revaluation surplus. As this revaluation initially increases the carrying amount of the asset class, the effect is an increase of total assets and total equity. Total debt remains unchanged. Unchanged numerator (total debt) over an increased denominator (total asset) decreases the ratio.
An analyst gathers the following information (in £ thousands) about equipment currently in use:
Carrying amount prior to impairment 600
Present value of expected future cash flows 400
Fair value if sold 350
Cost to sell 20
The carrying amount (in £ thousands) of the equipment after impairment is:
Incorrect answer:
A. 330.
B. 350.
C. 400.
Feedback
Based on your answer
Incorrect because £330,000 (= £350,000 – £20,000) is the lower of the equipment’s fair value less costs to sell and its value in use (£400,000). IFRS requires the new carrying value to be written down to the higher of its fair value less costs to sell (£330,000) and its value in use (£400,000). Under IAS 36, an impairment loss is measured as the excess of carrying amount over the recoverable amount of the asset. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and its value in use. Value in use is a discounted measure of expected future cash flows.
Ignoring income taxes, acquiring an intangible asset would most likely result in:
A. a lower net operating cash flow than internally developing the intangible asset.
B. the same net operating cash flow than internally developing the intangible asset.
C. a higher net operating cash flow than internally developing the intangible asset.
Tuve bien pero importante
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Based on your answer
Correct because acquiring an intangible asset is an investing activity whereas internally developing an intangible asset can be a combination of operating and investing activities. On the statement of cash flows, costs of internally developing intangible assets are classified as operating cash outflows whereas costs of acquiring intangible assets are classified as investing cash outflows. Costs of acquiring intangible assets are classified as investing cash outflows. IFRS require that expenditures on research (or during the research phase of an internal project) be expensed rather than capitalised as an intangible asset. IFRS allow companies to recognise an intangible asset arising from development (or the development phase of an internal project) if certain criteria are met, including a demonstration of the technical feasibility of completing the intangible asset and the intent to use or sell the asset.
An analyst gathers the following information about a company’s non-depreciable asset reported under the revaluation model:
Original cost €25,000
Reported value after initial revaluation €27,500
Reported value after second revaluation €22,500
The revaluation surplus after the second revaluation is:
A. –€2,500.
B. €0.
C. €2,500.
Puse LA A, soy tonto
B. €0
Explicación rápida (IFRS, revaluation model):
Costo original: 25,000
1ª revaluación (sube a 27,500): +2,500 → va a OCI como Revaluation surplus (+2,500).
2ª revaluación (baja a 22,500): −5,000 desde 27,500.
Primero consume el surplus de OCI (−2,500) → surplus queda en 0.
El exceso (otros −2,500) va a P&L como pérdida por revaluación.
Tras la segunda revaluación, el revaluation surplus = €0.
With respect to Statement 3, what is the most likely effect of the impairment loss?
A. Net income in years prior to 2022 was likely understated.
B. Net profit margins in years after 2022 will likely exceed the 2022 net profit margin.
C. Cash flow from operating activities in 2022 was likely lower due to the impairment loss.
Soy gilippollas
puse a , es b
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General feedback
B is correct. 2022 net income and net profit margin are lower because of the impairment loss. Consequently, net profit margins in subsequent years are likely to be higher. An impairment loss suggests that insufficient depreciation expense was recognized in prior years, and net income was overstated in prior years. The impairment loss is a non-cash item and will not affect operating cash flows.
The gain or loss on a sale of a long-lived asset to which the revaluation model has been applied is most likely calculated using sales proceeds less:
A. carrying amount.
B. carrying amount adjusted for impairment.
C. historical cost net of accumulated depreciation.
Era la A
Puse la B
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General feedback
A is correct. The gain or loss on the sale of long-lived assets is computed as the sales proceeds minus the carrying amount of the asset at the time of sale. This is true under the cost and revaluation models of reporting long-lived assets. In the absence of impairment losses, under the cost model, the carrying amount will equal historical cost net of accumulated depreciation.
According to IFRS, all of the following pieces of information about property, plant, and equipment must be disclosed in a company’s financial statements and footnotes except for:
A. useful lives.
B. acquisition dates.
C. amount of disposals.
Correct Answer:
B. acquisition dates.
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General feedback
B is correct. IFRS do not require acquisition dates to be disclosed
ntangible assets with finite useful lives mostly differ from intangible assets with infinite useful lives with respect to accounting treatment of:
A. revaluation.
B. impairment.
C. amortization.
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General feedback
C is correct. An intangible asset with a finite useful life is amortized, whereas an intangible asset with an indefinite useful life is not amortized. Rather, they are carried on the balance sheet at historical cost and are tested at least annually for impairment.
In 2015, a company undertook the following two transactions:
Borrowed money from an insurance company and pledged some of its production facilities as collateral for the loan.
Entered into an agreement with a local construction company to build a new research facility at a fixed price. Construction is to begin by 1 January 2016 and be completed by 31 December 2018.
With respect to required disclosures in the company’s financial statements, which of the following is most accurate? If the company reports under:
Incorrect answer:
A. US GAAP, only the pledged borrowing must be disclosed.
B. International Financial Reporting Standards (IFRS), neither transaction must be disclosed.
C. US GAAP, neither transaction must be disclosed.
Correct Answer:
C. US GAAP, neither transaction must be disclosed.
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Based on your answer
Incorrect. US GAAP does not require disclosure of either transaction, but IFRS requires that both be disclosed.
A company that reports in accordance with IFRS does not use the cost model to value its investment properties and property, plant, and equipment. Information related to an investment property and a plant is as follows:
€ thousands End of Year
Carrying Value Fair Value
Investment property 1,000 1,100
Plant 1,000 1,200
The impact on its net income for the year will most likely be a gain (in thousands) of:
A. €100.
B. €200.
C. €300.
Correct Answer:
A. €100.
Feedback
Based on your answer
Incorrect. The revaluation model would be used for the plant, and the gain should be recognized in the revaluation surplus account on the balance sheet. This is a new purchase and therefore no gains need to be recognized on the income statement to reverse previously recognized losses. Therefore, a maximum of $100,000 would be recognized on the income statement.
Below are excerpts from a company’s intangible assets note for 2015:
($ millions) Group 1 Group 2 Group 3 Group 4
Cost (opening) 840 320 118 96
Additions 76 — 7 —
Cost (ending) 916 320 125 96
Accumulated amortization and impairments (opening) 333 45 16 0
Amortization — 15 8 —
Impairments — — — 21
Accumulated amortization and impairments (ending) 333 60 24 21
Carrying amount 583 260 101 75
The 2015 opening carrying amount (in millions) of the company’s definite-life intangible assets is closest to:
Correct answer:
A. $377.
B. $361.
, Not Selected
C. $473.
, Not Selected
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Based on your answer
Correct. The definite-life intangibles are identifiable because they incur amortization and consist of the Group 2 and 3 assets.
($ millions) Group 2 Group 3
Cost (opening amounts) 320 118
Less: Accumulated amortization and impairments (opening amounts) –45 –16
Carrying value 275 102
Total carrying value 377
The following selected fixed asset information is available for a company:
2016 ($US millions)
Cost: Total property, plant, and equipment (PP&E) 30,815
Accumulated depreciation 16,465
Net PP&E 14,350
Average net PP&E 12,200
Net sales 21,670
Net income 2,705
The company’s fixed asset turnover ratio is closest to:
A. 1.78.
B. 8.01.
C. 1.51.
Correct Answer:
A. 1.78.
