Multiple Choice Question
Select the right answer (only one possible answer unless otherwise stated).
1 Which category (ies) of transactions and events is (are) specified in IAS 18 rules guiding the revenue recognition process?
(a) The sale of goods.
(b) The use by others of entity assets.
(c) The rendering of service.
(d) All of these.
2 In which of the following situations can one consider that the seller does not retain a significant risk of ownership?
(a) For a retail sale, refund is offered if the customer is not satisfied. The seller can reliably estimate future returns and recognizes a liability for returns.
(b) The entity retains an obligation in case of unsatisfactory performance not covered by normal warranty provisions.
(c) The receipt of the revenue from a particular sale is contingent on the derivation of revenue by the buyer from its sale of the goods.
(d) The goods are shipped subject to installation, and that installation is a significant part of the contract, which has not yet been completed by the selling enterprise or on its behalf.
3 The recognition of revenue by reference to the degree of completion of a transaction is often referred to as the percentage of completion method.
(a) True.
(b) False.
4 Progress payments and advances received from customers often reflect the services performed and can be used to reliably determine the percentage of completion.
(a) True.
(b) False.
5 When the outcome of a transaction involving the rendering of services cannot be estimated reliably, which of the following statements is correct?
(a) Revenue should not be recognized.
(b) Revenue should be recognized for the total amount specified in the contract.
(c) Revenue should be recognized only up to the amount of the recoverable recognized expenses.
(d) None of these.
6 In the four situations below, regarding revenue that arises from others’ use of entity assets (i.e. interest, royalties and dividends), which of the four situations is one when it would be inappropriate to recognize the revenue?
(a) When it is probable that the economic benefits associated with the transaction will flow to the enterprise.
(b) When the amount of the revenue can be measured reliably.
(c) When the contract is signed.
(d) When the payment is received.
7 When it is decided to deliberately anticipate or delay recognition of profit or losses to avoid reporting peaks and troughs in income, this is known as _____
(a) Income hiding.
(b) Income smoothing.
(c) Income covering.
(d) Income cheating.
8 What is created when the tax rules lead to a later recognition of the tax burden than under financial accounting?
(a) Deferred tax liability.
(b) Deferred tax revenue.
(c) Deferred tax asset.
(d) Deferred tax expense.
9 In the four situations below, which one is a case when a change in accounting policy would be inappropriate?
(a) If required by an Interpretation of a Standard.
(b) If required by a Standard.
(c) If the change will result in a more appropriate presentation of events or transactions in the financial statements of the entity.
(d) If suggested by the CEO.
10 Of the four items listed below, which one is not an element of ‘other comprehensive income’ (i.e., items not recorded in the income statement but directly in the shareholders’ equity)?
(a) Foreign currency items.
(b) Unrealized gains and losses on certain investments in debt and equity securities.
(c) Minimum pension liability adjustments.
(d) Restructuring costs.