IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley lFRS: Practical Implementation Guide and Workbook

MULTIPLE-CHOI CE QUESTIONS 1. Which of the following accounting methods must be applied to all business combinations under IFRS 3 Business Combinations? ' (a) Pooling of interests method. (b) Equity method. (c) Proportionate consolidation. (d) Purchase method. Answer: (d) 2. Purcha se accounting requires an acquirer and an acquiree to be identified for every business combina– tions. Where a new entity (H) is created to acquire two preexisting entities, S and A, which of these enti– ties will be designated as the acquirer? Answer: (d) 3.A.IFRS 3 requ ires all identifiable intangible assets of the acquired business to be recorded at their fair values. Many intangible assets that may have been subsumed within goodwill must be now separately valued and identified. Under lFRS 3, when would an intangible asset be "identifiable"? (a) When it meets the definition of an asset in the Framework document only. (b) When it meets the definition of an intangible asset in lAS 38, Intangible Assets, and its fair value can be measured reliably. (c) If it has been recognized under local gener– ally accepted accounting principles even though it does not meet the definition in lAS 38. (d) Where it has been acquired in a business combination. Answer: (a) B. Which of the following examples is unlikely to meet the definition of an intangible asset for the pur– pose of IFRS 3? (a) Marketing related, such as trademarks and internet domain names. (b) Customer related, such as customer lists and contracts. (c) Technology based, such as computer soft– ware and databases. (d) Pure research based, such as general expen- diture on research. Answer: (d) C. An intangible asset with an indefinite life is one where (a) There is no foreseeable limit on the period over which the asset will generate cash flows. (b) The length of life is over 20 years. (c) The directors feel that the intangible asset will not lose value in the foreseeable future. (d) There is a contractual or legal arrangement that lasts for a period in excess of five years. Answer: (a) (a) H. (b) S . (c) A. (d) A or S.

D. An intangible asset with an indefinite life is ac– counted for as follows: (a) No amortization but annual impairment test. (b) Amortized and impairment tests annually. (c) Amortize and impairment tested if there is a "trigger eve nt." (d) Amortized and no impairment test. Answer: (a) 4: An acquirer should at the acquisition date recog – ruze goodwill acquired in a business combination as an asset. Goodwill should be accounted for as fol– lows: (a) Recognize as an intangible asset and amor– tize over its useful life. (b) Write off against retained earnings. (c) Recognize as an intangible asset and impair– ment test when a trigger event occurs. (d) Recognize as an intangible asset and annu– ally impairment test (or more frequently if impairment is indicated). Answer: (d) 5. If the impairment of the value of goodwill is seen to have reversed, then the company may (a) Reverse the impairment charge and credit income for the period. (b) Reverse the impairment charge and credit retained earnings. (c) Not reverse the impairment charge. (d) Reverse the impairment charge only if the Answer: (e) 6. On acquisition, all identifiable assets and liabilities, including goodwill, will be allocated to cash-generating units within the business combina– tion. Goodwill impairment is assessed within the cash-generating units. If the combined organization has cash-generating units significantly below the level of an operating segment, then the risk of an impair– ment charge against goodwill as a result of IFRS 3 is (a) Significantly decreased because goodwill will be spread across many cash-generating units. (b) Significantly increased because poorly per– forming units can no longer be supported by those that are performing well. (c) Likely to be unchanged from previous ac– counting practice. (d) Likely to be decreased because goodwill will be a smaller amount due to the greater recognition of other intangible assets. Answer: (b) 7. Goodwill must not be amortized under IFRS 3. The transitional rules do not require restatement of previous balances written off. If an entity is adopting IFRS for the first time, and it wishes to restate all prior acquisitions in accordance with IFRS 3, then it must apply the IFRS to (a) Those acquisitions selected by the entity. original circumstances that led to the im– pairment no longer exist and credit retained earnings.