Solution Manual For
:
Intermediate Accounting
IFRS 4th Edition by Donald E.
Kieso, Jerry J. Weygandt,
Terry D. War
1. Question:
What are the primary objectives of financial reporting under IFRS?
Answer: The primary objectives of financial reporting under IFRS are:
● Provide useful information to current and potential investors, lenders, and other
creditors about the entity’s financial position, performance, and changes in financial
position.
● Decision-making: Help users make decisions about providing resources to the entity.
● Transparency and comparability: Ensure transparency and comparability of financial
statements across different reporting periods and entities globally.
2. Question:
Explain the concept of “fair value” as used in IFRS.
Answer: Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. IFRS
emphasizes that fair value measurement should reflect market-based evidence when available.
It focuses on:
● Market conditions: The price must reflect current market conditions.
● Exit price: Fair value is the exit price in the principal or most advantageous market.
, ● Observable inputs: Preference is given to observable market inputs, such as quoted
prices, over unobservable inputs.
3. Question:
Describe the difference between the “historical cost” and “fair value” methods of asset
valuation.
Answer:
● Historical Cost: Assets are recorded and carried at the amount originally paid to
acquire them, regardless of changes in market value.
● Fair Value: Assets are recorded at the price that would be received to sell the asset in a
current transaction. Fair value reflects market fluctuations and provides a more timely
representation of an asset’s value at a given point in time.
4. Question:
What are the key components of the statement of financial position under IFRS?
Answer: The statement of financial position, also known as the balance sheet, under IFRS
consists of the following key components:
● Assets: Resources controlled by the entity as a result of past events and from which
future economic benefits are expected.
● Liabilities: Present obligations of the entity arising from past events, settlement of which
is expected to result in an outflow of resources.
● Equity: The residual interest in the assets of the entity after deducting liabilities,
including capital contributed by shareholders, retained earnings, and other
comprehensive income.
5. Question:
How are revenue recognition principles applied under IFRS 15?
Answer: IFRS 15 outlines a five-step model for recognizing revenue:
1. Identify the contract with the customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies the performance obligation.
,Revenue is recognized when control of the goods or services is transferred to the customer,
reflecting the amount of consideration the entity expects to be entitled to in exchange for those
goods or services.
6. Question:
What is the purpose of the cash flow statement, and how is it structured under IFRS?
Answer: The purpose of the cash flow statement is to provide information about the entity’s
cash inflows and outflows during a specific period. It helps users assess the entity's ability to
generate cash and cash equivalents, as well as its needs for cash.
Under IFRS, the cash flow statement is structured into three sections:
● Operating activities: Cash flows related to the entity’s main revenue-generating
activities.
● Investing activities: Cash flows related to the acquisition and disposal of long-term
assets and investments.
● Financing activities: Cash flows related to changes in the size and composition of the
entity’s equity and borrowings.
7. Question:
What are the key differences between IFRS and U.S. GAAP when it comes to inventory
valuation?
Answer:
● Costing methods: Under IFRS, the LIFO (Last-In, First-Out) method is not permitted,
while it is allowed under U.S. GAAP.
● Reversals of inventory write-downs: IFRS permits the reversal of inventory write-
downs if the value of inventory increases after a previous write-down. U.S. GAAP does
not allow for such reversals.
● Measurement: Both IFRS and U.S. GAAP measure inventory at the lower of cost and
net realizable value, but U.S. GAAP defines cost slightly differently, with more emphasis
on historical cost methods.
8. Question:
What is the purpose of the impairment test for non-financial assets under IFRS?
Answer: The purpose of the impairment test under IFRS is to ensure that non-financial assets
are not carried at amounts greater than their recoverable amounts. Impairment occurs when the
carrying amount of an asset exceeds its recoverable amount, which is the higher of the asset’s
, fair value less costs to sell and its value in use (discounted future cash flows). If impaired, the
asset’s carrying value is reduced, and an impairment loss is recognized in the income
statement.
9. Question:
How is the depreciation of property, plant, and equipment (PPE) accounted for under
IFRS?
Answer: Under IFRS, depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life. The key steps include:
● Initial Recognition: PPE is initially recorded at cost, which includes the purchase price
and any costs necessary to bring the asset to its working condition for intended use.
● Depreciable Amount: This is the cost of the asset less its residual value.
● Depreciation Methods: Common methods include the straight-line method, declining
balance method, and units of production method. IFRS allows entities to select the
method that reflects the pattern of economic benefits derived from the asset.
● Revaluation Model: IFRS allows entities to revalue PPE to fair value, recognizing the
change in other comprehensive income.
10. Question:
What are the criteria for recognizing an intangible asset under IFRS?
Answer: An intangible asset can be recognized under IFRS if it meets the following criteria:
1. Identifiability: The asset is separable or arises from contractual or other legal rights.
2. Control: The entity controls the asset, meaning it can obtain future economic benefits
and can restrict others from accessing these benefits.
3. Future Economic Benefits: There must be probable future economic benefits
attributable to the asset.
4. Measurement at Cost: The cost of the intangible asset can be reliably measured.
Intangible assets, such as patents, copyrights, and trademarks, are initially measured at cost
and amortized over their useful life if they are finite-lived. Intangible assets with indefinite lives
are tested annually for impairment.
11. Question:
Explain how leases are accounted for under IFRS 16 for lessees.
:
Intermediate Accounting
IFRS 4th Edition by Donald E.
Kieso, Jerry J. Weygandt,
Terry D. War
1. Question:
What are the primary objectives of financial reporting under IFRS?
Answer: The primary objectives of financial reporting under IFRS are:
● Provide useful information to current and potential investors, lenders, and other
creditors about the entity’s financial position, performance, and changes in financial
position.
● Decision-making: Help users make decisions about providing resources to the entity.
● Transparency and comparability: Ensure transparency and comparability of financial
statements across different reporting periods and entities globally.
2. Question:
Explain the concept of “fair value” as used in IFRS.
Answer: Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. IFRS
emphasizes that fair value measurement should reflect market-based evidence when available.
It focuses on:
● Market conditions: The price must reflect current market conditions.
● Exit price: Fair value is the exit price in the principal or most advantageous market.
, ● Observable inputs: Preference is given to observable market inputs, such as quoted
prices, over unobservable inputs.
3. Question:
Describe the difference between the “historical cost” and “fair value” methods of asset
valuation.
Answer:
● Historical Cost: Assets are recorded and carried at the amount originally paid to
acquire them, regardless of changes in market value.
● Fair Value: Assets are recorded at the price that would be received to sell the asset in a
current transaction. Fair value reflects market fluctuations and provides a more timely
representation of an asset’s value at a given point in time.
4. Question:
What are the key components of the statement of financial position under IFRS?
Answer: The statement of financial position, also known as the balance sheet, under IFRS
consists of the following key components:
● Assets: Resources controlled by the entity as a result of past events and from which
future economic benefits are expected.
● Liabilities: Present obligations of the entity arising from past events, settlement of which
is expected to result in an outflow of resources.
● Equity: The residual interest in the assets of the entity after deducting liabilities,
including capital contributed by shareholders, retained earnings, and other
comprehensive income.
5. Question:
How are revenue recognition principles applied under IFRS 15?
Answer: IFRS 15 outlines a five-step model for recognizing revenue:
1. Identify the contract with the customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies the performance obligation.
,Revenue is recognized when control of the goods or services is transferred to the customer,
reflecting the amount of consideration the entity expects to be entitled to in exchange for those
goods or services.
6. Question:
What is the purpose of the cash flow statement, and how is it structured under IFRS?
Answer: The purpose of the cash flow statement is to provide information about the entity’s
cash inflows and outflows during a specific period. It helps users assess the entity's ability to
generate cash and cash equivalents, as well as its needs for cash.
Under IFRS, the cash flow statement is structured into three sections:
● Operating activities: Cash flows related to the entity’s main revenue-generating
activities.
● Investing activities: Cash flows related to the acquisition and disposal of long-term
assets and investments.
● Financing activities: Cash flows related to changes in the size and composition of the
entity’s equity and borrowings.
7. Question:
What are the key differences between IFRS and U.S. GAAP when it comes to inventory
valuation?
Answer:
● Costing methods: Under IFRS, the LIFO (Last-In, First-Out) method is not permitted,
while it is allowed under U.S. GAAP.
● Reversals of inventory write-downs: IFRS permits the reversal of inventory write-
downs if the value of inventory increases after a previous write-down. U.S. GAAP does
not allow for such reversals.
● Measurement: Both IFRS and U.S. GAAP measure inventory at the lower of cost and
net realizable value, but U.S. GAAP defines cost slightly differently, with more emphasis
on historical cost methods.
8. Question:
What is the purpose of the impairment test for non-financial assets under IFRS?
Answer: The purpose of the impairment test under IFRS is to ensure that non-financial assets
are not carried at amounts greater than their recoverable amounts. Impairment occurs when the
carrying amount of an asset exceeds its recoverable amount, which is the higher of the asset’s
, fair value less costs to sell and its value in use (discounted future cash flows). If impaired, the
asset’s carrying value is reduced, and an impairment loss is recognized in the income
statement.
9. Question:
How is the depreciation of property, plant, and equipment (PPE) accounted for under
IFRS?
Answer: Under IFRS, depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life. The key steps include:
● Initial Recognition: PPE is initially recorded at cost, which includes the purchase price
and any costs necessary to bring the asset to its working condition for intended use.
● Depreciable Amount: This is the cost of the asset less its residual value.
● Depreciation Methods: Common methods include the straight-line method, declining
balance method, and units of production method. IFRS allows entities to select the
method that reflects the pattern of economic benefits derived from the asset.
● Revaluation Model: IFRS allows entities to revalue PPE to fair value, recognizing the
change in other comprehensive income.
10. Question:
What are the criteria for recognizing an intangible asset under IFRS?
Answer: An intangible asset can be recognized under IFRS if it meets the following criteria:
1. Identifiability: The asset is separable or arises from contractual or other legal rights.
2. Control: The entity controls the asset, meaning it can obtain future economic benefits
and can restrict others from accessing these benefits.
3. Future Economic Benefits: There must be probable future economic benefits
attributable to the asset.
4. Measurement at Cost: The cost of the intangible asset can be reliably measured.
Intangible assets, such as patents, copyrights, and trademarks, are initially measured at cost
and amortized over their useful life if they are finite-lived. Intangible assets with indefinite lives
are tested annually for impairment.
11. Question:
Explain how leases are accounted for under IFRS 16 for lessees.
