CMA Exam Review - Part 1
1/8List the steps in the revenue recognition process.Identify the contract with a customer.
Identify performance obligations in the
contract.
Determine the transaction price.
Allocate the transaction price to the
performance obligations in the
contract.
Recognize revenue as, or when, the
performance obligations are satisfied.
List some external users of the financial
statements and briefly discuss why each
party uses them.
What are the differences in impairment testing under IFRS vs. U.S. GAAP?Under U.S. GAAP, impairment is
reviewed at the individual asset level;
under IFRS, an organization should
review for impairment at the cash-
generation unit (CGU) level.
Under IFRS, a one-step impairment test
is used rather than the two-step model
used for U.S. GAAP.
Recognizing reversals of prior
impairment losses is prohibited under
U.S. GAAP, but allowed under IFRS.
Shareholders and prospective investors: To determine their return on investment.
Financial institutions: Assess the ability to pay on loans and keep debt covenants.
Suppliers: Assess the ability of their customers to pay bills on time.
Customers: Assess whether the suppliers will remain in business.
Competitors: Compare their performance to others in the industry.
Regulators: Assess whether public organizations have adhered to accounting and reporting requirements.1
FC.rev.rec.FC001_1802
2
FC.fin.inc.FC002_1802
3
FC.ifrs.FC005_1802 CMA Exam Review - Part 1
2/8What is the difference between lease accounting in IFRS and U.S. GAAP?Under IFRS, leases are accounted for
similar to finance leases under US
GAAP, similar to the purchase of an
asset with debt.
Payments on leases with a term
shorter than 12 months or for leases of
small value (immaterial) assets are
expensed as incurred.
How do companies record dividend
distributions and net income related to
investments where significant influence is
obtained?If an investor has significant influence over an
investee, the investment is accounted for
using the equity method. Under the equity
method, companies record the investment at
cost, then increase/decrease the investment
by their pro-rata share of the net income/loss
of the investee. The investment is decreased
by their pro-rata share of the dividends
declared by the investee.
What are some factors that might influence the choice of inventory costing method?FIFO generally reflects the actual
physical flow of goods better.
LIFO is not allowed under
International Financial Reporting
Standards.
If there is an inflationary environment,
LIFO will have higher cost of sales, so
the gross margins and net income will
be lower, but the income tax liability
will also be lower.
If there is a deflationary environment,
LIFO will have lower cost of sales, so it
will have higher gross margins, net
income, and income tax liability.4
FC.ifrs.FC006_1904
5
FC.inv.oe.FC004_1802
6
FC.inv.FC005_1802
7
FC.acc.inc.tax.FC003_1905
1/8List the steps in the revenue recognition process.Identify the contract with a customer.
Identify performance obligations in the
contract.
Determine the transaction price.
Allocate the transaction price to the
performance obligations in the
contract.
Recognize revenue as, or when, the
performance obligations are satisfied.
List some external users of the financial
statements and briefly discuss why each
party uses them.
What are the differences in impairment testing under IFRS vs. U.S. GAAP?Under U.S. GAAP, impairment is
reviewed at the individual asset level;
under IFRS, an organization should
review for impairment at the cash-
generation unit (CGU) level.
Under IFRS, a one-step impairment test
is used rather than the two-step model
used for U.S. GAAP.
Recognizing reversals of prior
impairment losses is prohibited under
U.S. GAAP, but allowed under IFRS.
Shareholders and prospective investors: To determine their return on investment.
Financial institutions: Assess the ability to pay on loans and keep debt covenants.
Suppliers: Assess the ability of their customers to pay bills on time.
Customers: Assess whether the suppliers will remain in business.
Competitors: Compare their performance to others in the industry.
Regulators: Assess whether public organizations have adhered to accounting and reporting requirements.1
FC.rev.rec.FC001_1802
2
FC.fin.inc.FC002_1802
3
FC.ifrs.FC005_1802 CMA Exam Review - Part 1
2/8What is the difference between lease accounting in IFRS and U.S. GAAP?Under IFRS, leases are accounted for
similar to finance leases under US
GAAP, similar to the purchase of an
asset with debt.
Payments on leases with a term
shorter than 12 months or for leases of
small value (immaterial) assets are
expensed as incurred.
How do companies record dividend
distributions and net income related to
investments where significant influence is
obtained?If an investor has significant influence over an
investee, the investment is accounted for
using the equity method. Under the equity
method, companies record the investment at
cost, then increase/decrease the investment
by their pro-rata share of the net income/loss
of the investee. The investment is decreased
by their pro-rata share of the dividends
declared by the investee.
What are some factors that might influence the choice of inventory costing method?FIFO generally reflects the actual
physical flow of goods better.
LIFO is not allowed under
International Financial Reporting
Standards.
If there is an inflationary environment,
LIFO will have higher cost of sales, so
the gross margins and net income will
be lower, but the income tax liability
will also be lower.
If there is a deflationary environment,
LIFO will have lower cost of sales, so it
will have higher gross margins, net
income, and income tax liability.4
FC.ifrs.FC006_1904
5
FC.inv.oe.FC004_1802
6
FC.inv.FC005_1802
7
FC.acc.inc.tax.FC003_1905
