Financial Reporting And Analysis - Financial Reporting And Analysis Section 1
66. Which of the following statements related to goodwill is most likely correct?
- Option : C
- Explanation : Under both IFRS and US GAAP, goodwill is not amortized, but is tested for impairment annually. If goodwill is impaired, it is written down and the impairment loss is shown on the income statement.
| Category | MeasurementMethod | Realized Gains & LossesReported In |
| Trading | Fair Value | Income Statement |
| Held to maturity | Amortized Cost | Income Statement |
| Available for sale | Fair Value | Equity |
The treatment for which category is least likely accurate?
- Option : C
- Explanation : All categories treat realized gains or losses in the same way - they are reported on the income statement. It is the unrealized gains and losses that are included in other comprehensive income (in owner’s equity) for available for sale securities carried at market value.
| Category | Original Cost in €as at the Year End,2012 | Fair Market Valuein € as at the Year End, 2013 |
| Held for trading | 10000000 | 10,500,000 |
| Available for sale | 5000000 | 5500000 |
If the company reports under IFRS instead of U.S. GAAP, its net income will
most likely be:
most likely be:
- Option : A
- Explanation : Whether securities are classified as held for trading or available for sale, they are measured at their fair value on the balance sheet, but all gains/losses on held for trading securities are reported on the income statements. The unrealized gains/losses on available for sale securities are reported as part of equity. However, this treatment is the same under both IFRS and U.S. GAAP.
69. The following information is from a company’s investment portfolio:Investment
| Classification | Held-to-maturity |
| Market value, 31 Dec 2009 | $10,000 |
| Cost/Amortized cost 31 Dec 2009 | 12,000 |
| Market value, 31 Dec 2010 | 9,000 |
| Cost/Amortized cost 31 Dec 2010 | 10,000 |
If the investment is reclassified as available-for-sale as of 31 December 2010, the balance sheet carrying value of the company’s investment portfolio would
most likely:
most likely:
- Option : B
- Explanation : Held-for-trading and available-for-sale securities are carried at market value, whereas held-to-maturity securities are carried at amortized cost. If the investment is reclassified as available-for-sale in 2010, the carrying amount should be adjusted to its market value, which is $9,000. Compared with the amortized cost of $10,000, it is a decrease of $1,000.
70. Which of the following assets are most likely tested for impairment annually?
- Option : B
- Explanation : Intangible assets with indefinite lives are tested for impairment annually.
