Question 1

Liabilities which fail the recognition criteria and where the possibility of an outflow is remote should:

Accepted Answer

A)  be recognised as an accrual 
B)  be recognised as a provision 
C)  be recognised as a contingent liability 
D)  not be recognised in the financial statement at all 
A)  be recognised as an accrual 
B)  be recognised as a provision 
C)  be recognised as a contingent liability 
D)  not be recognised in the financial statement at all

Question 2

JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations would be as follows:
In 1 year $40 000
In 2 years $50 000
In 3 years. $60 000.
A government rate for bonds with similar terms, is 6%. What is the present value of the total expected future cash outflow?

Accepted Answer

A)  $132 563; 
B)  $140 510; 
C)  $150 000; 
D)  $159 000. 
A)  $132 563; 
B)  $140 510; 
C)  $150 000; 
D)  $159 000.

Question 3

An entity sells goods under warranty and past experience shows that minor defects account for 10% of sales and major defects account for 2% of sales. If all minor defects were repaired the warranty cost would be $300 000, and if all major defects were repaired the warranty cost would be $800 000. The expected value of the warranty cost is:

Accepted Answer

A)  $0; 
B)  $22 000; 
C)  $46 000; 
D)  $86 000. 
A)  $0; 
B)  $22 000; 
C)  $46 000; 
D)  $86 000.

Question 4

At balance sheet date, Raschella Limited was awaiting the final details of a court case for damages awarded in its favour. The amount and possible receipt of damages is unknown and will not be decided until the court sits again in several months' time. How is this event dealt with in the preparation of the financial statements?

Accepted Answer

A)  do not recognise or disclose in the financial statements as the possibility of receiving damages is remote; 
B)  recognise as an asset in the financial statements as the receipt of damages is probable; 
C)  disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control; 
D)  recognise as a deferred asset in the statement of financial position and re-classify as a non-current asset when the court decision is known. 
A)  do not recognise or disclose in the financial statements as the possibility of receiving damages is remote; 
B)  recognise as an asset in the financial statements as the receipt of damages is probable; 
C)  disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control; 
D)  recognise as a deferred asset in the statement of financial position and re-classify as a non-current asset when the court decision is known.

Question 5

Which of the following is not within the scope of IAS 37?

Accepted Answer

A)  The treatment of future operating losses 
B)  The treatment of contingent assets 
C)  The treatment of restructuring provisions arising from a business combination 
D)  The treatment of onerous contracts 
A)  The treatment of future operating losses 
B)  The treatment of contingent assets 
C)  The treatment of restructuring provisions arising from a business combination 
D)  The treatment of onerous contracts

Question 6

McCann Limited announced its plans for a major restructuring of its operations. Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the entity is able to:

Accepted Answer

A)  capitalise all direct and indirect restructuring costs; 
B)  set up a provision for the best estimate of all restructuring costs; 
C)  provide only for restructuring costs that are directly and necessarily caused by the restructuring; 
D)  provide for restructuring costs that are associated with the ongoing activities of the entity. 
A)  capitalise all direct and indirect restructuring costs; 
B)  set up a provision for the best estimate of all restructuring costs; 
C)  provide only for restructuring costs that are directly and necessarily caused by the restructuring; 
D)  provide for restructuring costs that are associated with the ongoing activities of the entity.

Question 7

The June 2005 exposure draft issued in relation to IAS 37 proposed changes to:

Accepted Answer

A)  I, II and III 
B)  II, III and IV 
C)  I, III and IV 
D)  I, II and IV 
A)  I, II and III 
B)  II, III and IV 
C)  I, III and IV 
D)  I, II and IV

Question 8

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when providing for the future, a future event such as the clean-up of a contaminated site, gains and other cash inflows that are expected to arise on the sale of asset related to the clean-up, must be treated as follows:

Accepted Answer

A)  set-off against the provision for the clean-up; 
B)  measured separately of the provision; 
C)  recognised directly in equity in the period in which the cash inflows arose; 
D)  recognised as a deferred asset. 
A)  set-off against the provision for the clean-up; 
B)  measured separately of the provision; 
C)  recognised directly in equity in the period in which the cash inflows arose; 
D)  recognised as a deferred asset.

Question 9

Contingent liabilities are:

Accepted Answer

A)  recognised in the financial statements unless the possibility of an outflow in settlement is remote. 
B)  recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote. 
C)  recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote. 
D)  not recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote. 
A)  recognised in the financial statements unless the possibility of an outflow in settlement is remote. 
B)  recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote. 
C)  recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote. 
D)  not recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.

Question 10

Which of the following statements is correct?

Accepted Answer

A)  A present obligation is an example of a legal obligation. 
B)  A legal obligation is an example of a constructive obligation. 
C)  A constructive obligation is an example of an equitable obligation. 
D)  An equitable obligation is an example of a present obligation. 
A)  A present obligation is an example of a legal obligation. 
B)  A legal obligation is an example of a constructive obligation. 
C)  A constructive obligation is an example of an equitable obligation. 
D)  An equitable obligation is an example of a present obligation.

Liabilities which fail the recognition criteria and where the possibility of an outflow is remote should:

Which of the following is not within the scope of IAS 37?

McCann Limited announced its plans for a major restructuring of its operations. Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the entity is able to:

The June 2005 exposure draft issued in relation to IAS 37 proposed changes to:

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when providing for the future, a future event such as the clean-up of a contaminated site, gains and other cash inflows that are expected to arise on the sale of asset related to the clean-up, must be treated as follows:

Contingent liabilities are:

Which of the following statements is correct?

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Income Taxes

Financial Instruments

Share-Based Payments

Inventories

Employee Benefits

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters

Exam 5: Provisions, Contingent Liabilities and Contingent Assets

Liabilities which fail the recognition criteria and where the possibility of an outflow is remote should:

Which of the following is not within the scope of IAS 37?

McCann Limited announced its plans for a major restructuring of its operations. Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the entity is able to:

The June 2005 exposure draft issued in relation to IAS 37 proposed changes to:

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when providing for the future, a future event such as the clean-up of a contaminated site, gains and other cash inflows that are expected to arise on the sale of asset related to the clean-up, must be treated as follows:

Contingent liabilities are:

Which of the following statements is correct?

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Income Taxes

Financial Instruments

Share-Based Payments

Inventories

Employee Benefits

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters