ACC 620 Final Review

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Which of the following statements is false?

When companies are required to disclose certain types of information, they compensate by voluntarily disclosing less other types of information

Financial forecast disclosures

are the company’s own forecasts of future profitability and cash flow

Information about shares and shareholders

normally includes data about share price trends in the US

Which of the following is a true statement about FASB Statement #131, "Disclosures about segments of an enterprise and related information"?

It is based on the way management organizes segments internally to make operating decisions and assess performance.

Which of the following is a reason for disclosing financial statement information "disaggregated" by geographic area?

To better assess the risks and opportunities faced by the company from operating in various regions of the world.

Under IAS 27, how is "control" defined?

The power to govern financial and operating policies of an entity

How is "control" defined by US GAAP?

Ownership of 50% of more of the voting shares of another entity

How does US GAAP differ from IFRS with respect to presenting consolidated financial statements?

IFRS excludes subsidiaries acquired for disposal within one year from the consolidation requirement, whereas US GAAP requires all controlled subsidiaries to be consolidated

Under US GAAP and IASB standards, the threshold for determining "significant influence" in an associate enterprise is:

20% ownership of voting shares

IFRS #8 adopts which approach to report segmented financial information?

management approach

Identify the false statement

Value added statement is required by US GAAP


Accounting measurement issues are more important than disclosure issues


Accounting issues are more controversial than disclosure issues


Disclosure ideas are limited only by the imagination of accountants and corporate managements


US GAAP requires environmental disclosures


Disclosures that are required in one country may be voluntary in another


Requirements for disclosures in one country encourage voluntary disclosures in other countries


Raising capital internationally encourages increased levels of voluntary disclosure

Which method was adopted by SFAS #33, Financial Reporting and Changing Prices?

Constant dollar method and current cost method

Which price index is used by the constant dollar method?


IAS #29, Financial Reporting in Hyperinflationary Economics, adopts which of the following methods?

General purchasing power accounting method

Which method retains the basis of measurement of assets like historical cost method?

Constant dollar method

Which of the following item under current cost accounting method is the same as Net Income on historical cost based income statement?

Realized net income

Constant dollar net income equals to:

income before purchasing power gain plus purchasing power gains

Under general purchasing power (GPP) accounting method non-financial assets are restated to a common purchasing power, generally, at

the closing balance sheet date

Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?

asset understatement, overpayment of income taxes, overstated income

Which method of accounting for inflation must be used under US GAAP?

Neither method must be used since inflation accounting is not required under US GAAP

What issue of reporting effects of changing prices is addressed by IAS 29, issued by the International Accounting Standards Board since 1989?

Mandating inflation adjustment for primary financial statements of companies in hyperinflationary economies

What is a carbon tax?

It is a tax on the use of fuels that cause the emission of carbon dioxide and other greenhouse gases into the atmosphere

Which of the following are significant shortcomings with voluntary CSR practices?

reliability, bias and a tendency towards being self-laudatory, and minimal disclosure of negative information

What organization is the only cap and trade system for all six greenhouse gases in North America?

The Chicago Climate Exchange

Which country has NOT ratified the 2005 Kyoto Protocol?


Which countries have ratified the Kyoto Protocol?

Japan, France, and Spain

What is the purpose of the IFAC’s Sustainability Framework?

To target professional accountants who can influence integration of sustainability into organization’s objectives, strategies, management, and definition of success

Where is the Secretariat of the GRI located?


Part 1 of the GRI 3 Sustainability Guidelines defines all BUT which one of the following?

Standards for disclosure

Part II of the GRI 3 Sustainability Guidelines defines which of the following?

Standards for disclosure

What does G3 represent?

The third generation of the GRI’s Sustainability Reporting Guidelines

To be carbon neutral means that:

an equal amount of gas has been removed from the atmosphere as has been put there through various emissions

Part 1 (Reporting Principles and Standards Disclosures) of the GRI 4 Sustainability Guidelines provides all BUT which one of the following?

material aspects and their boundaries

Part 1 of the GRI 4 provides:

reporting principles, standard disclosures, and criteria to be applied by an organization to prepare its sustainability report ‘in accordance’ with the guidelines

Part 1 of the GRI 3 Sustainability Guidelines defines:

report element, quality, and boundary

Part II (Implementation Manual) of the GRI 4 Sustainability Guidelines provides all BUT which one of the following?

Criteria to be applied by an organization to prepare its sustainability report ‘in accordance’ with the guidelines

Part II of the GRI 4 provides:

explanations of how to apply the reporting principles, how to prepare the information to be disclosed, and how to interpret the various concepts in the guidelines

Subsidiary A sells inventory that cost $5 to Subsidiary B for $20. Subsidiary B then sells the finished goods that cost $20 to an independent third party for $45. Which price is the transfer price?


A MNC has two subsidiaries – Subsidiary A, located in Country A, and Subsidiary B, located in Country B. Subsidiary A sells its entire output to Subsidiary B at an agreed upon transfer price. Lowering the transfer price

reduces the income taxes paid to Country A; should be considered if Country A restricts dividend payments while Country B does not; should be considered if the currency of Country B is more stable than the currency of Country A

Section 482 of the Internal Revenue Code gives the IRS the authority to reallocate income and deductions among subsidiaries if it determines that

it is necessary to do so to clearly reflect income

Which of the following is NOT a reported environmental influence on transfer prices?

language differences

Which of the following are reported environmental influences on transfer prices?

host country taxes; U.S. taxes; market conditions in the host country; reasonable profit for host country

Conditions in the host country that would induce a low transfer price on flows from the host country would include all but:

corporate income tax rate higher than in the home country; local loans based on financial appearance of host subsidiary

Conditions in the host country that would induce a low transfer price on flows from the host country would include:

corporate income tax rate lower than in the home country; significant competition; restrictions in host country on value of imports

Which of the following is true about advance pricing agreements?

In 2003, the IRS approved several thousand advance pricing agreements for U.S. taxpayers

Which of the following is false about advance transfer pricing agreements?

They are only granted for intercompany transactions between a U.S. parent and a foreign subsidiary; they are only granted for intercompany transactions between a foreign parent and a U.S. corporation

What is the advantage of an advance pricing agreement?

IRS will not challenge the transfer price after the tax return is filed if the agreement is followed

According to the IRS code section 482, what is the standard used by the IRS for international transfer pricing?

arm’s length price

The monetary amount used to record intercompany transactions is called?

transfer price

Novo Limited uses the same management control system in all of its 100 facilities throughout the world on the assumption that the culture at the home office is transferable to all other locations. What principle underlies Novo’s control system?


Which of the following nonfinancial criteria do U.S. MNCs view as the least important in evaluating the performance of their foreign operations?

community service

According to surveys in the U.S. and the United Kingdom, what are the most frequently used financial performance measures by multinational organizations?

budgeted profit vs. actual profit, return on investment, profit

Headquarters requires the manager of Foreign Subsidiary A to buy component parts from Foreign Subsidiary B at a price predetermined by headquarters. In this situation, it is most reasonable to hold the manager of Foreign Subsidiary B responsible for


In which of the following situations should a manager not be held responsible for fluctuations in foreign exchange rates?

budget at actual rate when budget formulated, evaluate at actual rate when evaluation performed; budget at actual rate when budget formulated, evaluate at actual rate when budget formulated

Translation is necessary (from the perspective of U.S. headquarter):

to communicate in U.S. dollars

When developing a performance evaluation system for an MNC

projected exchange rates should be used to develop the budget, and actual rates should be used to track the budget

In choosing the appropriate currency to measure a foreign subsidiary’s performance, the following factor or factors are considered:

the subsidiary’s role in the company’s overall strategy; whether foreign currency risk management is decentralized

MNC headquarter management may have trouble evaluating a foreign subsidiary manager’s performance because

top management is not likely to understand all of the peculiarities of each foreign operating environment

If only one currency is used for evaluating subsidiary performance in a multinational corporation, what currency is it most likely to be?

currency of the parent company’s home country

Holding managers accountable only for those factors over which they have control is called:

responsibility accounting

A U.S. parent would find the best communications capabilities with a subsidiary located in


Which of the following factors affects a foreign subsidiary’s budgeted cash flow?

tax laws, inflation, exchange rate

Which of the following is true?

If decision making in a MNC is decentralized, so is control


The quality of the management of a MNC improves as the number of financial reports increases


Control is directly related to the number of financial reports that corporate headquarters receives from its foreign subsidiaries- more reports result in more control and fewer reports result in less control


Goal congruence is reduced when subsidiary managers are evaluated based on the performance that results from their decisions


Research studies have shown that cultural and political differences across countries pose no barriers to uniform reporting within a MNC

Which of the following statements is correct?

for the profit center to work effectively, subsidiary managers must have the authority to make all decisions that affect their profits


Most major companies in the United States use the profit center concept for international operations, delegating authority and responsibility for decision making


delegating responsibility, without delegating the authority to make the major decisions that affect profitability, enhances goal congruence

Which of the following represent financial communication problems for the MNC?

difference in disclosure practices, differences in cultural and legal heritage, differences in political and economic heritage, identifying the relevant information that headquarters needs

Which item from the following list is least relevant to foreign subsidiary assessments?

the language of the country where the foreign subsidiary operates

Which items from the following list is relevant to foreign subsidiary assessments?

product adaptation to foreign markets, local availability of borrowed funds, human resources available to the foreign subsidiary, local attitudes toward alien managers

Which of the following factors is NOT considered in performing the environmental analysis phase of strategy formulation?

core competencies

Which of the following factors are considered in performing the environmental analysis phase of strategy formulation?

competitors, government regulations, customer demand

The profit center concept does not work very well with foreign subsidiaries because

the parent is unwilling to give decision making authority to the foreign manager

Determining a firm’s long-term goals and objectives, adopting courses of action, and allocating resources required to achieve goals is a process called:

strategic planning

How is goal congruence achieved in decentralized organizations?

creating incentives for managers to make decisions that are consistent with corporate goals

What is the primary role of external auditing in multinational corporations?

assuring that financial statement information is high quality

What is the primary role of internal auditing in multinational corporations?

monitoring risks and assessing their effects on the company

Why is litigation against external auditors, which is very common in the United States, virtually unknown in Japan?

such litigation is inconsistent with Japanese values of interpersonal harmony

What is the focus of Section 404 of the Sarbanes Oxley Act?

attesting to the reliability of internal controls in the annual report

Why is international harmonization of auditing standards important?

to assure international capital markets that auditing has been consistent across companies

What group is responsible for developing international auditing standards?

International Auditing and Assurance Standards Board I.A.A.S.B.

Which of the following is the responsibility if an audit committee?

oversee the internal control system, oversee internal auditing and the independent public accounting function, monitor the financial reporting process

What is an audit committee?

it is a subset of a corporate board of directors with oversight of the auditing function

Under the Sarbanes Oxley Act of 2002, to whom does the audit committee report?

board of directors

Under the Securities and Exchange Commission regulations, who may be a member of an audit committee for a listed company?

only members of the corporate board of directors who do not have a material interest in the company

What is the position of the U.S. Securities and Exchange Commission with respect to internal auditing?

it requires all companies, including foreign enterprises, listed on U.S. stock exchanges to have an internal audit function

According to FASB Statement #52, a self-sustaining, autonomous foreign subsidiary

has few transactions with the parent

A piece of land was purchased by a foreign subsidiary on Nov. 20, 2005 for LC 2,200. The exchange rate on Nov. 20 was 1LC=$1.3. On Dec. 31, the parent company’s year end, the exchange rate was 1LC=$1.4. If the foreign subsidiary is considered to be autonomous under the requirements of FASB Statement #52, at what U.S. dollar amount will the land be included in the consolidated financial statements at Dec. 31?


Assume the same facts as in Question 98, except that the foreign subsidiary is considered to be integral under the requirements of FASB #52. At what U.S. dollar amount will the land be included in the consolidated financial statements at Dec. 31, 1993?


The reasons exchange rates change include

relative interest rates and inflation rates, balance of payments, and political factors

Using historical rates to translate the financial statements of a foreign subsidiary poses the following problem:

the translated balance sheet no longer balances

Current U.S., accounting practice allows managements to designate foreign subsidiaries as "self-sustaining". In turn such subsidiaries’ home currencies are the "functional currencies" for purposes of preparing their financial statements for consolidation. When this is done

translation effects are reflected in stockholders’ equity

Even though a company is decentralized, it is apt to centralize which function?

research and development

When a MNC allows its foreign managers autonomy and evaluates them on the basis of individualized, local standards, that MNC is said to reflect which attitude?


A polycentric attitude is most consistent with which organizational structure?


Which of the following statements about multinational corporations is true?

they tend to centralize control over those functions critical for success and decentralize those who are less critical, an ethnocentric MNC is likely to be centralized, decentralized decision making is consistent with a geocentric attitude toward multinational business

Headquarters attitude toward multinational business policies affects both the organizational structure of and the control function of the MNC. Which statement is correct?

the geocentric attitude focuses on worldwide objectives

The transnational company of tomorrow must

be able to respond to both national and local differences, retaining local flexibility while achieving global integration

Which of the following factors affects the operating and financial risk of a foreign environment?

the stability of a country’s government, the stability of a country’s currency, and the stability of a country’s labor force

Which of the following is true about communication within a MNC?

it is important that all foreign subsidiaries use comparable accounting practices in communicating their results to corporate headquarters

Which of the following is done in the environmental assessment phase of the MNC management control system?

evaluate risks of expropriations and political instability

An effective management control system should

fully communicate projections

The ideal of corporate goal congruence means

everyone in the organization is operating on the same wavelength

Operating budgets for foreign subsidiaries should be

developed in terms of local currencies

If a projected exchange rate is used to track the results, then

only the impact of changes in the local environment fall on the subsidiary manager

Headquarters requires the manager of Foreign Subsidiary A to buy component parts from Foreign Subsidiary B at a price predetermined by headquarters. In this situation it is more reasonable to hold the manager of Foreign Subsidiary A responsible for


The manager of a foreign subsidiary operates with complete autonomy. In this situation, it is reasonable to evaluate the manager on which of the following?

revenues, cost, net income, return on investment

Which of the following features should be included in designing a performance evaluation system for a multinational corporation?

subsidiary manager should participate in establishing subsidiary goals

Which of the following statements about translation is true?

translation is necessary to evaluate the return produced by the dollar investment of the U.S. company

Which is the most frequently used indicator of internal performance evaluation by MNC international division executives?


All of the following are examples of uncontrollable costs that might be allocated to foreign subsidiaries except

cost of good solds

All of the following are examples of uncontrollable costs that might be allocated to foreign subsidiaries

royalties, interest, taxes, and exchange gains and losses

Compared with U.S. Auditing, which statement is incorrect?

Japanese auditors spend more hours planning an engagement than American auditors

Compared with U.S. Auditing, which statements are correct?

there are fewer audit working paper prepared in Japan, there are few lawsuits in Japan involving auditors, it is customary to give expensive gifts and have social relationships with business clients in Japan

A MNC has two subsidiaries- Subsidiary A, located in country A, and Subsidiary B, located in Country B. Subsidiary A sells its entire output to Subsidiary B at an agreed upon transfer price. Raising the transfer price

should be considered if Country B is less stable than Country A

MNCs regularly engage in transfer pricing. A transfer price is the

amount of money charged when goods and services are exchanged between various organizational units of the MNC

Which of the following does not mitigate the effect of double taxation?

controlled foreign corporation

Which of the following does mitigate the effect of double taxation?

tax haven, tax treaty, tax avoidance, and transfer pricing

A country fitting the definition of a tax haven is

Cayman Islands

Which of the following best describes the current approach to the global harmonization of accounting and financial reporting?

International accounting standards serve as a benchmark that can be adapted to the specific needs of a company or country

Accounting technology is constantly changing. The rate of change is heavily influenced by:

its costs

Which item would not be considered a social responsibility disclosure?

earnings forecasts

Which items would be considered social responsibility disclosures?

employee safety, environmental protection, equal opportunities in the workplace, and facilities for the disabled

Think globally and act locally was discussed in the text in relation to

the central issue faced by MNCs in developing appropriate accounting information system

MNC transfer pricing is an internationally sensitive issue. The issue involves

tax collection in different countries

When the functional currency of a foreign operation is the U.S. dollar, exchange gains resulting from remeasuring foreign currency financial statements into U.S. dollars should be included as

an ordinary item in the income statement

The financial statements of a foreign subsidiary are to be measured by use of the subsidiary’s functional currency. The functional currency of an entity is defined as the currency of the

primary economic environment in which the entity operates

Which of the following statements is true?

there is less structured supervision and training of staff in Japan compared to their counterparts in the United States

The temporal method of foreign current translation

uses historical exchange rates to translate fixed assets and depreciation expense, uses the year-end exchange rate to translate cash, preserves the historical cost basis of accounting, and is used by U.S. MNCs to translate the financial statements of "integral" foreign subsidiaries


During a period of inflation in which an asset account remains constant, a purchasing power loss occurs if the item is a monetary asset


All else equal, subsidiaries in tax haven countries should sell their products to other subsidiaries of the MNC at as high a transfer price as possible


In a MNC, a foreign subsidiary may be evaluated as "poor" and at the same time, the subsidiary’s manager may be evaluated as "good"


Organizing by function is popular among the extractive companies due to the homogeneity of the product


When a MNC is organized by geographic area, managers may be responsible for several products


In Japan, audit fees are fixed under the Securities and Exchange Law and based on terms negotiated by the Japanese Institute of CPA and the Keidanren


Under current cost accounting, current cost income, net income, is equal to realized income plus unrealized holding gain/loss


If a subsidiary is located in a highly inflationary country, the MNC should consider as low a transfer price as possible for products that the subsidiary sells to other subsidiaries of the MNC

Territorial principle

income earned outside domestic boundaries will not be taxed (France, China, Panama, Venezuela)

Worldwide principle

income earned outside boundaries is taxed when earned by an entity based in the country; this results in double taxation (Australia, Brazil, the Czech Republic, Germany, Japan, Mexico, the Netherlands, the UK, the US)

Mitigates double taxation

tax credits, tax treaties, tax havens, the deferral principle, and tax exemptions

Equity principle

under similar circumstances, taxpayers should pay the same tax

Neutrality principle

states that the tax effect should not have an impact on business decisions. Business decisions are driven by economic fundamentals, such as rate of return, rather than tax considerations.

tax avoidance

the legal reduction of one’s tax liability, is accomplished by tax planning

objectives of worldwide tax avoidance

(1) operating within the spirit of the host and home countries’ laws; (2) paying a minimum amount of total taxes to host and home country governments; (3) maximizing after-tax income and cash flow

Procedures that should be incorporated in a tax-planning information system that attempts to accomplish worldwide tax minimizing and tax avoidance

(1) stating the objectives of tax planning in MNC operations; (2) delegating responsibilities for tax planning to both headquarters and subsidiaries; (3) determining what operations are affected by tax considerations and how they are affected; (4) communicating necessary information to the tax planners and decision makers; (5) evaluating the impact of tax considerations have on an MNC strategic plan and management control system

tax credit

allows an entity to reduce the taxes paid to the domestic government by the amount of taxes paid to the foreign government

tax treaties

between nations, this establishes what items of income will or will not be taxed by the authorities of the country where the income is earned

tax havens

offer a variety of benefits, including low taxes or no taxes on certain classes of income. No income taxes: Bahamas, Bermuda, Cayman Islands; low income taxes: British Virgin Islands; tax income from domestic sources but exempt income from foreign sources: Liberia and Panama

tax deferral principle

principle whereby companies are not taxed on foreign source income until they actually receive a dividend

controlled foreign corporation

this is a foreign corporation in which US shareholders (US corporations, citizens or residents) directly or indirectly own more than 50% of the voting stock. Only shareholders holding more than a 10% voting interest are counted in determining the 50% requirement. these rules tax US shareholders on this kind of income when it is earned, regardless of when it is received.

subpart F income

this includes certain related party sales and services income. Also, includes passive income such as dividends, interest, rents, royalties, and net gains on foreign exchange, etc. For example, if a XYZ subsidiary of a US corporation buys inventory from its US parent and exports the inventory to China, the profits booked by the XYZ subsidiary are subpart F income. on the other hand, if XYZ sells the inventory locally, income from the local sales is not subpart F income. this has been introduced in most industrialized countries as an anti-tax haven measure.

tax exemptions

these allow certain corporations to pay no tax on certain income

MNCs – taxation

These entities manage their worldwide tax liability, therefore, managers need to monitor the tax implications of moving goods across borders, establishing manufacturing facilities, setting up joint venture situations, selling through exports, and many other activities. To effectively plan and control, these entities need this tax information and it therefore becomes part of the accounting information system.

What is the optimal tax objective for multinational corporations?

minimize worldwide taxes paid, within the limitations of applicable tax law

What is a tax holiday?

This is a period of time when corporations are relieved of paying various taxes.

What is a tax haven?

A jurisdiction where taxes are abnormally low

In addition to having very low effective tax rates, which of the following is also a characteristic of tax havens?

All: a lack of transparency in financial reporting; lack of effective exchange of information; absence of substantial activities requirement

Jane, a citizen of Country X, received a corporate dividend in the amount of 10,000 pounds from a company in the UK. Country X taxed Jane’s dividend as ordinary income. Country X is using what kind of approach toward foreign source income?

worldwide approach

What causes double taxation?

the cause of this is a taxpayer being subject to tax laws in multiple jurisdictions

What is the meaning of ‘tax system neutrality?’

the meaning of this is that tax systems should not be a major factor in business decisions

What term is used to describe a foreign corporation in which U.S. shareholders hold more than 50% of the voting power or fair market value of the corporation’s stock?

controlled foreign corporation

How does the U.S. government tax controlled foreign corporations differently from other subsidiaries?

some income of the CFC is taxed by the U.S. in the year it is earned rather than when dividends are received

What is ‘subpart F’ income?

income that is easily moved to tax havens

Which of the following statements about MNCs is true?

a. they tend to centralize control over those functions critical for success and decentralize those that are less critical; b. an ethnocentric MNC is likely to be centralized

A majority of U.S. companies use basically the same accounting information system to collect and process data from foreign operations as from domestic. This is true because

All of the above: it is less expensive to export an already existing system; headquarters requires all subsidiaries to use similar systems for control purposes; it is easier to due to familiarity with the system


A transnational corporation is centralized


When you think of Bayer aspirin, you think of it as a local product, not a German invention. This is because Bayer has an ethnocentric attitude

When an MNC exports the domestic accounting information system without change for use by its foreign corporations, it is said to reflect which attitude?


Japanese companies often centralize operations in Japan because

they want to be able to respond to changing global forces

ABC Inc. changes its method of valuation of inventories from weighted-average method to FIFO method. ABC Inc. should account for this charge as

a change in accounting policy and account for it retrospectively

IFRS #1, First-time Adoption of International Financial Reporting Standards, requires that an entity prepare and present an opening statement as the starting point. This is the beginning of the first period for which comparative statements are presented under IFRS in its "first IFRS financial statements" and is known as the

date of transition

ABC Ltd. decides to operate a new amusement part that will cost $1 million ti build in the year of 2005. Its financial year-end is Dec. 31, 2005. ABC Ltd. has applied for a letter of guarantee for $700,000. The letter of guarantee was issued on March 31, 2006. The audited financial statements have been authorized to be issued on April 18, 2006. The adjustment required to be made to the financial statement for the year ended Dec. 31, 2005 should be

do nothing

At the balance sheet date, Dec. 31, 2005, ABC Inc. carried a receivable from XYZ, a major customer, at $10 million. The "authorization date" of the financial statements is on Feb. 16, 2006. XYZ declared bankruptcy on Feb. 14, 2006. ABC Inc. will

make a provision for this post-balance sheet event in its financial statements as opposed to disclosure in footnotes

The classification of a lease as either operating or finance lease is based on

the transfer of the risks and rewards of ownership

Which of the following situations would prima facie lead to a lease being classified as an operating lease?

the present value of the minimum lease payments if 50% of the fair value of the asset

An entity contributes to an individual pension plan that provides a pension payment arrangement for its employee. A large number of other employees also contribute to the pension plan, and the entity makes contributions in respect of each employee. These contributions are kept separate from corporate assets and are used together with any investment income to purchase annuities for retired employees. The only obligation of the entity is to pay the annual contributions. This pension scheme is a

multi-employer plan and a defined contribution scheme

Which of the following are employee benefits payable that result either from an entity’s decision to end an individual’s employment before the normal retirement date or an employee’s decision to accept voluntary termination in exchange for those benefits?

termination benefits

Which of the following is not a related part as envisaged by IAS #24?

a shareholder of the entity that holds 1% stake in the entity

IAS #24, Related Party Disclosures, requires disclosure of compensation of key management personnel. Which of the following would not be considered "compensation" for this purpose?

reimbursement of out-of-pocket expenses

An entity bought a 25% share in another entity with a view to selling that investment within 6 months. The investment has been classified as held for sale in accordance with IFRS #5, Non-current Assets Held for Sale and Discontinued Operations. How should the investment be treated in the final year accounts?

the assets and liabilities should be presented separately from other assets in the balance sheet under IFRS #5

An investment must apply the requirements of IAS #36, Impairment of Assets, in determining whether it is necessary to recognize any impairment loss in the investment in an associate. How is the impairment test carried out?

the entire carrying amount of the investment is tested for impairment under IAS #36 by comparing its recoverable amount with its carrying amount

What accounting method should be used for an investment in an associate where it is operating under severe long-term restrictions- for example where the government of a company has temporary control over the associate?

the equity method should be applied if significant influence can be exerted

Property was purchased on Dec. 31, 2005, for 20 million zlotis. The general price index in the country was 60.1 on that date. On Dec. 31, 2007, the general price index had risen to 240.4. If the entity operates in a hyperinflationary economy, what would be the carrying amount in the financial statements of the property after restatements?

80 million zlotis

The weighted average number of shares outstanding during the period for all period, other than the conversion of potential ordinary shares, should be adjusted for to calculate DEPS

Any change in the number of ordinary shares without a change in resources

Value-in-use is

the discounted present value of future cash flows arising from use of the asset and from its disposal

Goodwill should be tested for impairment


A newly set up dot-com entity has engaged you as its financial advisor. The entity has recently completed on of its highly publicized R&D projects and seeks your advice on the accuracy of the following statements made by one of its stakeholders. Which one is it?

costs incurred during the "development phase" can be capitalized if criteria such as technical feasibility of the project being established are met

Which of the following items qualify as an intangible asset under IAS #38?

legal costs paid to intellectual property lawyers to register a patent

Under which of the following circumstances would an entity’s current year’s financial statements not qualify as first IFRS financial statements?

the entity prepared its previous year’s financial statements in conformity with all requirements of IFRS, and these statements did obtain an explicit and unreserved statement that they complied with IFRS

IFRS #4, Insurance Contracts, says that insurance contracts should

generally continue to be subject to existing accounting policies during phase one

Which two methods are adopted by IAS #21, The Effects of Changes in Foreign Exchange Rates?

Current rate method and monetary/non-monetary method


Under IFRS, the corridor is 10% of the greater of the obligation and the fair value, rather than the market-related value, of plan assets at the beginning of the period


IFRSs do not have the concept of extraordinary items and therefore disclosure of the related EPS is not relevant


determination of the operating segments is based on the entity’s internal management reports

Balanced scorecard

Combines financial measures of past performance with nonfinancial measures of the drivers of future performance to provide management with a road map for creating shareholder value

Balanced scorecard focuses on an integrated relationship among key elements of business-

Vision, strategy, and 4 perspectives (customer, internal business process, learning and growth, financial)

Most important nonfinancial measure

Market growth/ success

Problems with financial measures

Too historical, lack predictive behavior, reward wrong behavior, focus on inputs not outputs

Cost center

Responsible for costs and reduction

Profit center

Responsible for both costs and revenues

Investment center

Responsible for generating adequate ROI

Multinational company

Has operated as a decentralized unit with the ability to respond to national and local differences and opportunities

Global company

Has managed operations by tightly controlling it’s worldwide subsidiaries through centralization

Transnational company

Operates efficiently and economically through global scale operations, retaining local flexibility while achieving global integration. Think globally act locally

Five forms of organization used by MNC

International division, product line, function, geographic, matrix

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