Deck 6: Revenue Recognition Issues

Question 1

A change in accounting policy should be made only:

A) If required by tax law.
B) If the change will result in a more appropriate presentation of events or transactions in the financial statements of the entity.
C) If it allows the entity to improve its income.
D) All of these

Answer 1

B

Question 2

There are two kinds of differences between income tax rules and accounting rules.What are these called?

A) Permanent and impermanent differences
B) Permanent and temporary differences
C) Persistent and temporary differences
D) Present and future differences

Answer 2

B

Question 3

What does IAS 20 handle?

A) Government grants
B) Subventions
C) Subsidies
D) All of these

Answer 3

D

Question 4

What is the preferred accounting treatment of government grants relating to assets?

A) Grants are recorded directly as an increase in shareholders' equity
B) Grants are 'amortized' over a period to be matched with related costs
C) Grants are recognized in totality in the first year
D) None of these

Question 5

Total comprehensive income is defined as the 'change in equity during a period resulting from transactions and other events,other than those changes resulting from transactions with owners in their capacity as owners'.

Question 6

When the conditions for revenue recognition are satisfied,on which basis should interest be recognized?

A) Proportionately to the length of the period during which the asset was actually made available and on the basis of the agreed interest rate.
B) Proportionately to the length of the period during which the asset was actually made available and on the basis of the inflation rate.
C) Proportionately to the cash collected and on the basis of the agreed interest rate.
D) None of these

Question 7

Deferred tax is created when income tax expense is based on:

A) Taxable income
B) Pre-tax income
C) Financial income
D) Operating income

Question 8

The basic principle of deferred taxation is that the difference is not expected to be reversed in future periods.

Question 9

IFRS 15 states that,revenue associated with a transaction should be recognized as a function of the stage,or percentage of completion of the transaction,at the end of the reporting period,when the outcome of a transaction involving the rendering of services can be estimated ____.

A) Approximately
B) Undoubtedly
C) Accurately
D) Reliably

Question 10

Which method is preferred by the IASB to account for long-term contracts?

A) Completion method
B) Fixed price method
C) Completed contract method
D) Cost plus method

Question 11

Which of the following equations is correct?

A) Taxable income = Taxable revenues + Deductible expenses or costs
B) Taxable income = Revenues - Expenses
C) Taxable income = Taxable revenues - Deductible expenses or costs
D) Taxable income = Revenues + Expenses

Question 12

Which accounting principle is designed to prevent abuses of flexibility in revenue recognition?

A) Consistency principle
B) Accrual principle
C) Going concern principle
D) Matching principle

Question 13

Permanent differences are created by revenue and expense items,which are recognized for accounting purposes but not for tax purposes or which are recognized for tax purposes but not for accounting purposes.

Question 14

Which of the following statements does not define a discontinued operation?

A) A discontinued operation represents a separate major line of business or geographical area of operations
B) A discontinued operation is a component of an entity that is not profitable.
C) A discontinued operation is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations.
D) A discontinued operation is a subsidiary acquired exclusively with a view to resale.

Question 15

Which of the following methods is not used to determine the percentage of completion of a transaction?

A) Cost allocation method.
B) Quantity of services performed to date as a percentage of total services to be performed.
C) Actual measurement of work performed.
D) The proportion that costs incurred to date represented as a percentage of the re-estimated total cost of the transaction at completion.

Question 16

According to IFRS 15,revenue is 'income arising in the course of an entity's ordinary activities.' Income represents an increase in 'economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity,other than those relating to contributions from equity participants'.(IFRS 15)

Question 17

Development costs can be capitalized and amortized in the income statement over several periods while the full amount is tax deductible in the period in which the development costs were incurred.Which of the following accounting items will be generated by this temporary difference?

A) Deferred tax liability
B) Deferred tax revenue
C) Deferred tax asset
D) Deferred tax expense

Question 18

Loss carry-back means that the losses of one period can be used to offset profits made in previous periods,allowing a tax refund.

Question 19

In which country a loss carry-forward allows the entity to offset future taxable income against the accumulated losses for up to 20 years?

A) Australia
B) France
C) United States
D) None of these

Question 20

According to IAS 18,revenue is 'the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity participants'.(IAS 18)

Question 21

When accounting for and reporting government grants relating to assets,the entity should record the grant directly as an increase in shareholders' equity.