CPA Core 1- Week 1 And 2 Test
Questions with Elaborated Answers.
Cash-Based Accounting - Answer Sales are recorded when the money is received.
Accrual-Based Accounting - Answer Recording sales when the events have incurred
Why do you use Accrual-Based Accounting - Answer More expensive but companies that want
to be in accordance to IFRS or GAAP must put statements in accrual-based system
First-time Adoption - Answer Eg. Company under ASPE wants to switch to IFRS. They must
retrospectively state their assets in the prior year in IFRS.
How is Inventory held? - Answer Lower of Cost and Net Realizable Value
What is included in the cost of inventory - Answer Cost (bring it to the current condition)
Cost of Sale (shipping, duties and commissions)
Inventories are assets: - Answer - held for sale in the ordinary course of business
- in the process of production or sale
- in the form of materials or supplies to be consumed in the process of rendering services
ASPE vs IFRS (Inventories) - Answer Borrowing costs have to be capitalized for IFRS, there is a
choice for ASPE
Capitalized costs for PP&E - Answer - purchase costs including duties
- costs to bring asset to use
- major inspection costs
- major spare parts
- standby or servicing parts
- dismantling, removing and restoration costs
PP&E must have - Answer an extending future benefit over 1 year
Subsequent Measurement - Revaluation Model (Increase FMV) - Answer Gain recognized first
to NI up to previous losses then to OCI
, Subsequent Measurement - Revaluation Model (Decrease FMV) - Answer Loss first recognized
through OCI to the amount of the gain and then to NI
ASPE vs IFRS Differences (Impairment) - Answer - IFRS has an annual test for impairment
whereas you monitor impairment for ASPE
- Recoverable amount is discounted for IFRS
- Write down is to fair value for APSE and recoverable amount for IFRS
- Impairments can be reversed for IFRS not ASPE
IFRS 15 5 steps - Answer 1. Identify the Contract
2. Identify the Performance Obligations
3. Determine Transaction Price
4. Allocate the Transaction Price to Each Performance Obligation
5. Recognize Revenue when each obligation is Satisfied
ASPE 3400 Criteria - Answer 1. Risk and Rewards of Ownership have transferred
2. Revenue can be measured reliably
3. Collection is reasonably measured
Step 1 for assessing materiality - Answer users of financial statements
step 2 for assessing materiality - Answer user's objectives
step 3 for assessing materiality - Answer Base for Materiality
• normalized income before tax (this is the most common case for for-profit entities)
• total assets
• total revenues
• total expenses
• total equity
step 4 for assessing materiality - Answer For-profit entities:
• 3% to 7% of normalized income before tax
• 1% to 3% of revenues or expenses
• 1% to 3% of total assets
Questions with Elaborated Answers.
Cash-Based Accounting - Answer Sales are recorded when the money is received.
Accrual-Based Accounting - Answer Recording sales when the events have incurred
Why do you use Accrual-Based Accounting - Answer More expensive but companies that want
to be in accordance to IFRS or GAAP must put statements in accrual-based system
First-time Adoption - Answer Eg. Company under ASPE wants to switch to IFRS. They must
retrospectively state their assets in the prior year in IFRS.
How is Inventory held? - Answer Lower of Cost and Net Realizable Value
What is included in the cost of inventory - Answer Cost (bring it to the current condition)
Cost of Sale (shipping, duties and commissions)
Inventories are assets: - Answer - held for sale in the ordinary course of business
- in the process of production or sale
- in the form of materials or supplies to be consumed in the process of rendering services
ASPE vs IFRS (Inventories) - Answer Borrowing costs have to be capitalized for IFRS, there is a
choice for ASPE
Capitalized costs for PP&E - Answer - purchase costs including duties
- costs to bring asset to use
- major inspection costs
- major spare parts
- standby or servicing parts
- dismantling, removing and restoration costs
PP&E must have - Answer an extending future benefit over 1 year
Subsequent Measurement - Revaluation Model (Increase FMV) - Answer Gain recognized first
to NI up to previous losses then to OCI
, Subsequent Measurement - Revaluation Model (Decrease FMV) - Answer Loss first recognized
through OCI to the amount of the gain and then to NI
ASPE vs IFRS Differences (Impairment) - Answer - IFRS has an annual test for impairment
whereas you monitor impairment for ASPE
- Recoverable amount is discounted for IFRS
- Write down is to fair value for APSE and recoverable amount for IFRS
- Impairments can be reversed for IFRS not ASPE
IFRS 15 5 steps - Answer 1. Identify the Contract
2. Identify the Performance Obligations
3. Determine Transaction Price
4. Allocate the Transaction Price to Each Performance Obligation
5. Recognize Revenue when each obligation is Satisfied
ASPE 3400 Criteria - Answer 1. Risk and Rewards of Ownership have transferred
2. Revenue can be measured reliably
3. Collection is reasonably measured
Step 1 for assessing materiality - Answer users of financial statements
step 2 for assessing materiality - Answer user's objectives
step 3 for assessing materiality - Answer Base for Materiality
• normalized income before tax (this is the most common case for for-profit entities)
• total assets
• total revenues
• total expenses
• total equity
step 4 for assessing materiality - Answer For-profit entities:
• 3% to 7% of normalized income before tax
• 1% to 3% of revenues or expenses
• 1% to 3% of total assets
