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ACCO 310 Study Guide - Midterm Guide: International Financial Reporting Standards, Contingent Liability, Income Statement

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bluetortoise899
23 Sep 2015
School
Concordia University
Department
Accountancy
Course
ACCO 310
Professor
Tomek Kopczynski

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Document Summary

Question 1- 20 marks 36 minutes: which of the following constitute a change of accounting policy according to international. A change in the basis of valuing property. A decision to capitalise borrowing costs relating to the construction of non-current assets, rather than writing them off as incurred. By changing the current year figures but not the previous years" figures. No alteration of any figures but disclosure in the notes no alteration of any figures or disclosure in the notes: which one of the following would be regarded as a change of accounting policy under. An entity changes its method of depreciation of machinery from straight line to reducing balance. An entity has started capitalising borrowing costs for non-current assets whereas it previously wrote those costs off to its income statement as incurred. An entity changes its method of calculating the provision for warranty claims on its products sold.

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Related Questions

On January 31, 2011, we elected to change our costing method forthe material component of raw materials, work in process, andfinished goods inventory to the lower of cost or market using thefirst-in first-out (“FIFO”) method, from the lower of cost ormarket using the last-in first out (“LIFO”) method. The labor andoverhead components of inventory have historically been valued on aFIFO basis. We believe that the FIFO method for the materialcomponent of inventory is preferable as it conforms the inventorycosting methods for all components of inventory into a singlecosting method and better reflects current acquisition costs ofthose inventories on our consolidated balance sheets. Additionally,presentation of inventory at FIFO aligns the financial reportingwith our borrowing base under our line of credit (see Note 3 forfurther discussion of the line of credit). Further, this changewill promote greater comparability with companies that have adoptedInternational Financial Reporting Standards, … In accordance withFASB ASC Topic 250, Accounting Changes and ErrorCorrections, all prior periods presented have been adjusted toapply the new accounting method retrospectively.

The retroactive effect of the change in our inventory costingmethod, including the indirect effect of such change, increased theFebruary 1, 2008, opening retained earnings balance by $4.1million, and increased our inventory and retained earnings balancesby $8.5 million and $5.4 million as of January 31, 2009, by $6.9million and $4.3 million as of January 31, 2010, and by $7.6million and $4.7 million as of January 31, 2011, respectively. Inaddition the change in our inventory costing method, including theindirect effect of such change, increased (decreased) net income by$1.3, $(1.0) and $0.4 million for the years ending January 31,2009, 2010 and 2011, respectively.

Required:

Why does GAAP require Virco to retrospectively adjust prioryears' financial statements for this type of accounting change?

Assuming that the quantity of inventory remained stable duringthe previous two years, did the cost of Virco's inventory move upor down during that year?

Why does the change “promote greater comparability withcompanies that have adopted International Financial ReportingStandards”?

Read the 2015 annual report of Air France – KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports ‘Consolidated statement of recognized income and expenses’ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can ‘exercise significant influence on financial and operating policy decisions?’

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an ‘accumulated other comprehensive income’ item among those reported in the ‘reserves and retained earnings’ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLM’s intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-years’-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in ‘income from operating activities’ but not in ‘income from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an ‘other non-current income and expenses’ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities