Question

1. For companies with patterns of increasing R&D expenditure, the expenses avoided by capitalization in a given period exceed that period's amortization charges. In such cases, what would be the impact of R&D capitalization on the reported profits?

a. The reported profits would be inflated relative to a full-expensing system.

b. The reported profits would be deflated relative to a full-expensing system.

c. There would be no impact on the reported profits.

d. The reported profits would be doubled, compared to a full-expensing system.

2. "Costs that are excluded from the costs of inventories are abnormal amounts of ______ materials, labor, or other production costs and storage costs that are not related to the production process."

a. wasted

b. direct

c. manufacturing

d. production

3. The removal of an asset or liability from the balance sheet and the accounts refers to ______.

a. derecognition

b. deletion

c. recognition

d. removal

e. None of the choices

4. According to IAS 2, the net realizable value is computed by subtracting the estimated costs of completion and the estimated costs necessary to make the sale from ______.

a. the estimated selling price in the ordinary course of business

b. the estimated selling price in a booming market condition

c. the historical cost or the original purchase price

d. the estimated selling price in a recession

5. The acquisition costs of property, plant, and equipment do not include:

a. Maintenance costs during the first 30 days of use.

b. Legal fees, delivery charges, installation, and any applicable sales tax.

c. The net invoice price.

d. The ordinary and necessary costs to bring the asset to its desired condition and location for use.

6. According to International Financial Reporting Standards (IFRS), the revaluation of equipment when fair value exceeds book value, results in

a. An increase in other comprehensive income.

b. A decrease in other comprehensive income.

c. A decrease in net income.

d. An increase in net income.

7. Under U.S. GAAP, research and development costs for projects other than software development should be:

a. Expensed in the period incurred.

b. Expensed if unsuccessful, capitalized if successful.

c. Deferred pending determination of success.

d. Expensed in the period they are determined to be unsuccessful.

10. IAS 16 covers all of the following aspects of accounting for fixed assets, except ______.

a. recognition of initial costs of merchandise held for resale

b. depreciation

c. recognition of initial costs of property, plant, and equipment

d. measurement at initial recognition

e. All of the choices are covered in IAS 16.

Answer 1

1. Answer-a

The reported profits will be inflated when compared to full expensing system.

This is because in full expensing system the total expenditure incurred for R&D will be charged to profit & loss which will be more than amortization expense that was charged to profit & loss in case of capitalization of the same.

Q. 2 Answer a

The abnormal loss or wastage cost will be deducted from the cost of inventory

Q. 3 answer a

It will be called as derecognition of asset or liability

Q. 4 Answer a

NRV = estimated selling price - costs associated with the sales in normal conditions

Q. 5 Answer a

The Acquisition cost does not include maintenance cost

Q. 6 answer a

when during the revaluation the fair value exceeds the book value, the other comprehensive income will increase

Q. 7 answer a

As per us gaap, they should be expenses in the year of spending

Q. 10 answer a

It doesn't cover the initial merchandise cost held for resale