Questions and Answers of International Financial Reporting And Analysis

A write down of the value of inventory to its net realizable value will have a positive eff ect on the:A . balance sheet.B . income statement.C . inventory turnover ratio.
Cinnamon Corp. started business in 2017 and uses the weighted average cost method.During 2017, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2018, it
Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in 2018. Compared to the ratios that would have been calculated if the write-down had never occurred, Zimt’s
Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in 2018. Compared to the results the company would have reported if the write-down had never occurred, Zimt’s
Company A adheres to US GAAP, and Company B adheres to IFRS. Which of the following is most likely to be disclosed on the fi nancial statements of both companies?A . Any material income resulting
Which of the following m ost likely signals that a manufacturing company expects demand for its product to increase?A . Finished goods inventory growth rate higher than the sales growth rate.B .
Compared with a company that uses the FIFO method, during a period of rising unit inventory costs, a company using the LIFO method will m ost likely appear more:A . liquid.B . effi cient.C . profi
In a period of declining inventory unit costs and constant or increasing inventory quantities, which inventory method is most likely to result in a higher debt-to-equity ratio?A . LIFO.B . FIFO.C .
If Karp had used FIFO instead of LIFO, the amount of inventory reported as of 31 December 2018 would have been closest to:A . $$465$ million.B . $$658$ million.C . $$775$ million.John
If Karp had used FIFO instead of LIFO, the amount of cost of goods sold reported by Karp for the year ended 31 December 2018 would have been closest to:A . $$2$,056 million.B . $$2$,173 million.C
If Karp had used FIFO instead of LIFO, its reported net income for the year ended 31 December 2018 would have been higher by an amount closest to :A . $$30$ million.B . $$38$ million.C . $$155$
If Karp had used FIFO instead of LIFO, Karp’s retained earnings as of 31 December 2018 would have been higher by an amount closest to :A . $117 million.B . $124 million.C . $155 million.John
If Karp had used FIFO instead of LIFO, which of the following ratios computed as of 31 December 2018 would most likely have been lower?A . Cash ratio.B . Current ratio.C . Gross profit margin.John
If Karp had used FIFO instead of LIFO, its debt to equity ratio computed as of 31 December 2018 would have:A . increased.B . decreased.C . remained unchanged.John Martinson, CFA, is an equity analyst
Crux’s inventory turnover ratio computed as of December 31, 2018, after the adjustments suggested by Groff , is closest to:A . 5.67.B . 5.83.C . 6.13.Robert Groff , an equity analyst, is preparing
Rolby’s net profi t margin for the year ended December 31, 2018, after the adjustments suggested by Groff , is closest to:A . 6.01%.B . 6.20%.C . 6.28%.Robert Groff , an equity analyst, is
Compared with its unadjusted debt-to-equity ratio, Mikko’s debt-to-equity ratio as of December 31, 2018, after the adjustments suggested by Groff , is:A . lower.B . higher.C . the same.Robert Groff
The 2017 inventory value as reported on the 2018 Annual Report if the company had used the FIFO inventory valuation method instead of the LIFO inventory valuation method for a portion of its
If ZP had prepared its fi nancial statement in accordance with IFRS, the inventory turnover ratio (using average inventory) for 2018 would be:A . lower.B . higher.C . the same.ZP Corporation is a
Inventory levels decreased from 2017 to 2018 for all of the following reasons except:A . LIFO liquidation.B . decreased sales volume.C . fluctuations in foreign currency translation rates.ZP
Note 2 indicates that, “Inventories valued on the LIFO basis totaled ¥94,578 million and ¥50,037 million at December 31, 2017 and 2018, respectively.” Based on this, the LIFO reserve should
HA acquired 100 per cent of SB’s equity shares on 1 April 20X0 for $185,000. The values of SB’s assets at that date were:On 1 April 20X0, all other assets and liabilities had a fair value
On 1 October 20X5, Zanda Co acquired 60 per cent of Medda Co’s equity shares by means of a share exchange of one new share in Zanda Co for every two acquired shares in Medda Co. In addition, Zanda
Extracts from the financial statements of QA and LM for the year ended 31 March 20X4 are presented below.Summarized statement of profit or loss and statement of other comprehensive income for the
Compare the capitals and incomes of all the Activities in this chapter. Consider how they are the same or different and why this is the case.
The statements of financial position for ST and UV as at 31 December 20X4 are provided below:Additional innformation:ST acquired 80 per cent of the ordinary shares of UV on 1 May 20X1 for $1,100,000.
On 1 June 20X2, Premier acquired 80 per cent of the equity share capital of Sanford. The consideration consisted of two elements: a share exchange of three shares in Premier for every five acquired
Can you think of an underlying reason why some corporate governance mechanisms work better in insider systems and other corporate governance mechanisms work better in outsider systems?
The statements of financial position for ER and MR as at 31 December 20X2 are provided below.Additional information: 1. ER acquired 80 per cent of the equity share capital of MR on 1
ER acquired 80 per cent of the 1 million $1 equity shares of MW on 1 January 20X2 when MW’s retained earnings were $1,050,000. The consideration for the acquisition consisted of $400,000 cash paid
Extracts from the financial statements of AZ, B and C are presented below.Additional information:1. AZ acquired 80 per cent of the equity share capital of B on 1 January 20X2 when the retained
On 1 January 20X4, Plastik acquired 80 per cent of the equity share capital of Subtrak. The consideration was satisfied by a share exchange of two shares in Plastik for every three acquired shares in
On 1 April 20X3 Polestar acquired 75 per cent of the equity share capital of Southstar. Southstar had been experiencing difficult trading conditions and making significant losses. In allowing for
The statements of profit or loss and other comprehensive income and changes in equity for XY and its subsidiary AZ for the year ended 31 December 20X5 are shown below:Statement of profit or loss and
What is ‘control’ when used in relation to consolidated financial statements?
Construct (using appropriate assumptions) a mixed group structure, bringing together a holding entity, a subsidiary and a sub-subsidiary.
The preparation of consolidated financial statements provides useful information to users. Discuss.
Appraise the need for consolidated accounts.
Extracts from the financial statements of MAT, X and Y are presented below.Additional information:1. MAT acquired 80 per cent of the equity share capital of X on 1 January 20X1 when the retained
On 1 April 20X1, Picant acquired 75 per cent of Sander’s equity shares in a share exchange of three shares in Picant for every two shares in Sander. The market prices of Picant’s and Sander’s
Define a subsidiary, associate and related party entity.
Identify how a subsidiary, associate and related party will be dealt with in the financial statements of a group.
Joey, a public limited company, operates in the media sector. Joey has investments in two companies. The draft statements of financial position at 30 November 20X4 are as follows:The following
Frame plc is a company whose functional and presentation currency is the euro. During April 20X7, the company had the following sterling transactions.Required:Calculate the foreign exchange gain/loss
Coatmin is a government-controlled bank. Coatmin was taken over by the government during the recent financial crisis. Coatmin does not directly trade with other government-controlled banks but has
At 30 November 20X6, three people own the shares of Suntory. The finance director owns 60 per cent, and the operations director owns 30 per cent. The third owner is a passive investor who does not
Should exchange differences appear in the statement of profit or loss of an entity or be charged direct to a separate component of equity? State the reasons for your answer.
Extracts from the financial statements of A and its subsidiary B are presented below.Additional information:1. A acquired 80 per cent of the equity share capital of B on 1 January 20X0 for
AB is planning to acquire 100 per cent of the equity of KM, an entity that operates overseas and which currently prepares its financial statements in euros. The directors of AB intend to require that
RD operates in Country A and has established the A$ as its functional currency. RD acquired a piece of machinery from an overseas supplier at a cost of B$5 million on 20 November 20X3. The invoice
OVS operates in country G, which has the Grum as its currency. OVS sources all raw materials locally and is subject to local taxes and corporate regulations. The current workforce is recruited
ST, UV and WX are listed entities operating in the same business sector. At 31 October 20X6, their PE ratios were reported as follows:ST 16.2 UV 12.7 WX 8.4Which ONE of the following
On 1 October 20X3, Penketh acquired 90 million of Sphere’s 150 million $1 equity shares. The acquisition was achieved through a share exchange of one share in Penketh for every three shares in
Extracts from the financial statements of AB, CD and EF are presented below.Additional information: 1. AB acquired 80 per cent of the ordinary share capital of CD for $620,000 on 1 January 20X1
Compare what you have read about taxonomies of financial accounting and reporting systems with taxonomies of corporate governance systems. Identify similarities and differences. Discuss.
On 1 April 20X3, Xtol issued a 5 per cent $50 million convertible loan note at par. Interest is payable annually in arrears on 31 March each year. The loan note is redeemable at par or convertible
What is a financial instrument?
How does the IASB differentiate between financial instruments and other assets and liabilities?
Explain the three classifications of financial assets under IFRS 9.
Kappa is an entity that operates in a sector where the recruitment and retention of high quality employees is particularly important in order to achieve corporate goals. You are the financial
Which view of the objectives of general purpose financial reporting do you regard as the most important? Why?
The IASB assumes that financial information that helps investors and other users of general purpose financial reporting make their investment decisions is useful for all other information users. Do
Think of the factors that make it difficult for the Board’s IFRS Standards and the FASB’s US GAAP standards to fully converge. Are they mostly political or are they also related to the different
In this chapter we read that, on the one hand, financial reporting standards are meant to prevent capital markets from breaking down due to less informed investors withdrawing from the market because
Discuss whether, in essence, accounting is law based or economics based.
If accounting is culture based and national, indeed, local cultures are different, international harmonization will obviously be impossible. Discuss.
Positive research is a necessary starting point on the road to normative thinking, but it can never be enough by itself. Discuss.
(a) Outline Fisher’s thinking on the concept of income.(b) Outline Hicks’s thinking on this topic.(c) Relate and compare the two.
What do CPPP adjustments do and how are they calculated?
Are general indices more or less useful in financial reporting than specific price changes?
Current purchasing power adjustments are simple to apply, but hard to explain and interpret. Discuss.
What is ‘fair value’? Is it a good idea?
Investors need an up-to-date forward-looking indication of annual performance, implying a focus on the income statement, and lenders need an up-to-date indication of asset values, implying a focus on
In the end, for most practical purposes, historical cost is best. Discuss.
Look at the consolidated financial statements of Philips for 2015. Search online for the financial statements of Philips. Find the note for financial instruments. See how Philips has applied IFRS 13.
Consider Agency Theory, Stewardship Theory and Stakeholder Theory. Which theory do you think best describes the problems of corporate governance and why?
Appraise the development of corporate governance in meeting the needs of business and its stakeholders in the twenty-first century in your own country.
Appraise the relationship between corporate scandals and corporate governance regulation and codes of practice.
‘While La Porta et al.’s categorization of legal families ... suggests that there should be little difference between the UK and the US, the US approach is substantially different’ (Goergen,
Appraise the harmonization of corporate governance regulation across the EU.
Identify and discuss at least four reasons why corporations should take CSR reporting seriously.
Freeman’s (1984) concept of strategic stakeholder management probably formed the basis for Stakeholder Theory in corporate governance. Explain in what ways Stakeholder Theory in corporate
Socially responsible investors apply positive and/or negative screening based on values and performance criteria. What kind of criteria would you apply and why?
Map the core subjects and the principles of social responsibility of the GRI and IIRC frameworks onto the UN Global Compact’s ten principles. In what ways are they similar and in what ways are they
Some people think that the term ‘business ethics’ is an oxymoron. What do you think and why?
The accounting profession serves the private interests of the profession, the private interests of clients, credit grantors, employers, investors, the business and financial community, governments
According to the IESBA Code of Ethics, integrity is one of the main principles that accountants must apply in order to serve the public interest. For accountancy bodies to teach their prospective
Consider the threats to adherence to the principles of the IESBA Code of Ethics in relation to each of the ethical principles of the IESBA Code of Ethics. For example, the threat of self-interest can
Consider how the threat of self-interest relates to the threat of advocacy, and how the threat of familiarity might lead to the threat of advocacy. What might be solutions to these types of threat?
Amy is a senior financial accountant for a large manufacturing company listed on the stock exchange. In her professional capacity she has learnt that the company’s profit for the year is above the
On 1 January 20X5 Company A commenced the construction of a new office building. The office building was completed on 31 December 20X5. To fund the construction of the building, Company A used both
What are fixed (non-current) assets?
Should land be allowed or required to be revalued?
Due to rising property prices, Downing decided to revalue its land and buildings on 1 April 20X5 to their market value. On 1 April 20X5, prior to the revaluation exercise, the carrying value of land
Kayte operates in the shipping industry and owns vessels for transportation. Kayte’s vessels constitute a material part of its total assets. The economic life of the vessels is estimated to be 30
(i) Discuss the arguments for and against the capitalization of borrowing costs as part of the cost of an asset.(ii) On 1 April 20X2 Webster commenced the construction of a large development
Minco often sponsors professional tennis players in an attempt to improve its brand image. At the moment, it has a three-year agreement with a tennis player who is currently ranked in the world’s
Aphrodite has a year end of 31 December and operates a factory which makes computer chips for mobile phones. It purchased a machine on 1 July 20X3. A fire at the factory on 1 October 20X6 damaged the
During 20X9 the following inventory of XYZ was acquired and used by Degrees.There was no opening inventory of XYZ.Required: Using the FIFO method, calculate the closing inventory of XYZ for
Darlatt has built an offshore wind farm with the purpose of testing the efficiency of its prototype wind turbines. Darlatt has applied to the regulators for approval for production of its new

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