International Financial Reporting
Midterm Exam
Course Introduction
International Financial Reporting explores the principles, standards, and regulations that govern the preparation and presentation of financial statements in a global context. The course covers major aspects of International Financial Reporting Standards (IFRS), emphasizing their application, interpretation, and the differences from local Generally Accepted Accounting Principles (GAAP). Students will learn about key reporting requirements for assets, liabilities, income, and cash flows, as well as the importance of transparency, comparability, and consistency in international financial communication. Through practical cases and exercises, participants gain skills essential for analyzing and preparing financial reports for organizations operating across international borders.
Recommended Textbook
Financial Accounting and Reporting A Global Perspective 5th Edition by Herv Stolowy
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Chapter 1: Accounting: the Language of Business
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Sample Questions
Q1) Which of the following statements is true?
A) The border between managerial accounting and financial accounting is clearly defined
B) Managerial accounting and financial accounting are totally distinct from one another
C) There is no difference between managerial accounting and financial accounting
D) Managerial accounting and financial accounting are closely linked
Answer: D
Q2) Shareholders want to know periodically.
A) If the firm they have invested in is able to reimburse the money it has borrowed and how much residual wealth was created in the transformation process that they can claim as theirs.
B) What the firm they have invested in owns and how much of the residual wealth created in the transformation process they can claim as theirs.
C) What the firm they have invested in owns and how much managers are paid.
D) If the firm they have invested in is able to reimburse the money it has borrowed and how much managers are paid.
Answer: B
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3
Chapter 2: Introduction to Financial Statements
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Q1) Which items are traditionally listed first in Continental Europe?
A) Short-term
B) Valuable
C) Long-term
D) None of these.
Answer: C
Q2) How is the return on sales (net profit margin)calculated?
A) Net income/Shareholders' equity
B) Net income/Sales
C) Net income/Total assets
D) Sales/Shareholders' equity
Answer: B
Q3) Which of the following transactions has an impact on the bank's cash balance but not on retained earnings?
A) Purchase of equipment
B) Sales of goods
C) Payment of wages
D) Payment of financial interest
Answer: A
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Page 4
Chapter 3: Financial Statements: Interrelations and Construction
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Q1) On a statement of financial position/balance sheet the total of debit balances equals the total of credit balances.
A)True
B)False
Answer: True
Q2) The income statement impact on the statement of cash flows is through revenues and expenses collected or paid during the year.
A)True
B)False
Answer: True
Q3) All over the world,the overall structure of the accounts code is left entirely up to company management.
A)True
B)False
Answer: False
Q4) Repaying the principal of a debt will generate a cash outflow.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Accounting Principles and End-Of-Period Adjustments
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Q1) What effect does the adjusting entry recognizing interest expense have on the basic accounting equation?
A) Increase in assets,increase in liabilities
B) Increase in liabilities,decrease in shareholders' equity
C) Decrease in assets,decrease in liabilities
D) Decrease in liabilities,increase in shareholders' equity
Q2) A business has two bank accounts: one has a positive balance of 50 CU and the second has a negative balance of 70 CU.What should be reported in the balance sheet?
A) A net negative balance of 20 CU on the assets side.
B) A net negative balance of 20 CU on the liabilities side.
C) A balance of 70 CU on the assets side and a balance of 50 CU on the liabilities side.
D) A balance of 50 CU on the assets side and a balance of 70 CU on the liabilities side.
Q3) Which of the following is an example of an adjusting entry?
A) The payment of wages which have been accrued
B) The collection of an accounts receivable
C) The return of defective inventory
D) The accrual of interest expense
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Page 6
Chapter 5: Regulation of Accounting and Financial Reporting
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Q1) An annual report includes:
A) A letter to the shareholders
B) A management report
C) Financial statements
D) All of these
Q2) Accounting terminology differs from one country to another.Which terms deal with the same concept respectively in US,UK and IASB terminology?
A) Long-term/Fixed/Non-current Assets
B) Short-term/Fixed/Non-current Assets
C) Long-term/Fixed/Non-operating Assets
D) Long-term/Tangible/Non-current Assets
Q3) The different formats that exist for the presentation of the statement of financial position/balance sheet do not affect its generic content.
A)True
B)False
Q4) The IASB imposes the use of the classification by function.
A)True
B)False
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Chapter 6: Revenue Recognition Issues
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Q1) Permanent differences are created by revenue and expense items,which are recognized for accounting purposes but not for tax purposes or which are recognized for tax purposes but not for accounting purposes.
A)True
B)False
Q2) Development costs can be capitalized and amortized in the income statement over several periods while the full amount is tax deductible in the period in which the development costs were incurred.Which of the following accounting items will be generated by this temporary difference?
A) Deferred tax liability
B) Deferred tax revenue
C) Deferred tax asset
D) Deferred tax expense
Q3) Which accounting principle is designed to prevent abuses of flexibility in revenue recognition?
A) Consistency principle
B) Accrual principle
C) Going concern principle
D) Matching principle
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Page 8
Chapter 7: Tangible Fixed Assets
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Q1) If an airplane jet engine which is kept in inventory to be used during maintenance operations or for a replacement,is treated as a tangible asset,which of the following statements is true?
A) It is never subject to depreciation.
B) It is subject to an annual depreciation expense even before being brought into operational use.
C) It is subject to an annual depreciation expense only when it is brought into operational use.
D) None of these
Q2) What is another name for tangible assets?
A) Plant assets
B) Operational assets
C) Property,plant and equipment
D) All of these
Q3) What is the most commonly accepted useful life for furniture?
A) 3 years
B) 5 years
C) 10 years
D) 20 years
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Chapter 8: Intangible Assets
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Q1) Which of the following examples is not an example of development activities?
A) The design of tools,jigs,molds and dies involving new technology.
B) The search for,evaluation and final selection of,applications of research findings or other knowledge.
C) The design,construction,and operation of a pilot plant that is not of a scale economically feasible for commercial production.
D) The design,construction,and testing of a chosen alternative for new or improved materials,devices,products,processes,systems,or services.
Q2) Since economic benefits derived from intangible assets are uncertain,the cost should be expensed in the period when it incurs.Which principle is put into practice in this statement?
A) Going concern principle
B) Matching principle
C) Prudence principle
D) Accrual principle
Q3) Pharmaceutical companies are known to have a high R&D intensity.
A)True
B)False
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Chapter 9: Inventories
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Q1) According to IAS 2,what should the cost of inventories comprise?
A) Costs of purchase
B) Costs of conversion
C) Costs incurred in bringing the inventories to their present condition and location
D) All of the previous costs
Q2) According to IAS 2,which of the following pieces of information should be given in the notes of the financial statements?
A) Accounting policies adopted in measuring inventories,including the cost formula used.
B) Circumstances or events that led to the reversal of a write-down of inventories.
C) Carrying amount of inventories pledged as security for liabilities.
D) All of these
Q3) Work in progress measures the value of the resources attached to items that are still left in the process of production on the closing date.
A)True
B)False
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Chapter 10: Financial Instruments in the Statement of
Financial Position and Fair Value Accounting
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Q1) Which of the following items is not a type of accounts receivable reported in the financial statements?
A) Doubtful accounts receivable
B) Disputed accounts receivable
C) Uncollectible accounts receivable
D) Overdue accounts receivable
Q2) Held-to-maturity investments are valued at fair value through profit or loss in the balance sheet.
A)True
B)False
Q3) What is the name of the written document in which a person or business promises to pay a given amount to a third party on a specified date?
A) A draft
B) A promissory note
C) A bill of exchange
D) None of these
Q4) IAS 39 defines three categories of financial instruments in assets?
A)True
B)False
12
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Chapter 11: Shareholders Equity
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Q1) How is the debt/equity ratio calculated?
A) Shareholders' equity/Total assets
B) Shareholders' equity/Long-term debts
C) Total assets/Shareholders' equity
D) Long-term debts/Shareholders' equity
Q2) Which of the following equations is correct?
A) Outstanding shares Authorized shares Issued shares
B) Outstanding shares Issued shares Authorized shares
C) Authorized shares Issued shares Outstanding shares
D) Issued shares Outstanding shares Authorized shares
Q3) Which of the following equations is correct?
A) Subscribed capital = Paid-in capital - Capital receivable - Uncalled capital
B) Subscribed capital = Paid-in capital + Capital receivable + Uncalled capital
C) Subscribed capital/Paid-in capital = Uncalled capital
D) Subscribed capital × Uncalled capital = Paid-in capital
Q4) What is it called when reserves are incorporated into the share capital?
A) Cancellation
B) Incorporation
C) Capitalization
D) Reservation
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Chapter 12: Liabilities and Provisions
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Q1) Which of the following items is not a current liability?
A) Notes payable
B) Income taxes payable
C) Accounts payable
D) Inventories
Q2) Which of the following items is not considered to be payroll taxes?
A) Employer's portion of social security
B) Unemployment taxes
C) Employer's portion of employees' life insurance premiums
D) Workers' compensation taxes
Q3) In accounting terms,wages and salaries are handled differently.
A)True
B)False
Q4) Which of the following items is not part of working capital?
A) Trade payables
B) Cash
C) Trade receivables
D) Accruals for employee
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Chapter 13: Business Combinations
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Q1) Which concept is applied if one considers that the consolidated financial statements are established mainly for internal decision making-purposes?
A) Property concept.
B) Parent company concept.
C) Entity concept.
D) Parent company extension concept.
Q2) According to IAS 31,a jointly controlled entity is a corporation,partnership,or other entity in which two or more venturers have an interest.Which type of arrangement establishes joint control over the entity?
A) Commercial arrangement
B) Contractual arrangement
C) Tacit arrangement
D) Supply arrangement
Q3) How are non-controlling [minority] interests reported in the financial statements?
A) Between shareholders' equity and liabilities.
B) As a part of liabilities of consolidated entity.
C) Included as a part of shareholders' equity.
D) All of these.
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Chapter 14: Income Statement Analysis
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Q1) Fedora SpA is a wool hat manufacturer.The price of wool is increasing at the rate of 20% a year.Labor cost per hour increases at the rate of 2% a year.During period X1,for 100 CU of sales,the raw materials represented 50% of the cost of manufacturing a hat.Manufacturing labor represented 20% of the cost of manufacturing a hat.Forty percent of both manufacturing and SG&A costs were allowances for depreciation of fixed assets,the rest were labor costs or purchases from third parties that tend to increase at the same rate as manufacturing labor cost per hour.No new investment is considered in X1 or X2.Selling,general,administrative and interest expenses represent 32% of the sales revenue.The working capital needed to support 100 CU of sales is 50 CU that are financed at an average cost of capital of 4% a year (the amount of WCN is expected to remain the same in X2).Net profit before tax is 8% of the selling price.What is the expected profit per 100 CU of revenue for X2 if selling prices cannot increase more than 5%?
A) 3.17 CU
B) 6.18 CU
C) 5.94 CU
D) 5.88 CU
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Chapter 15: Balance Sheet Analysis
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Sample Questions
Q1) Balmer Company sells manufactured products for a price of 10 CU per unit.The credit terms received from suppliers of materials are 90 days.It grants credit to its customers for 10 days.Its inventory of finished products turnover is 24;its raw material inventory turnover is 48.Its transformation process takes a day.Its manufacturing value added to raw materials purchased is 10%.Its gross margin is 20%.Its net margin before tax is 5%.All costs other than materials are paid cash.The working capital need required to sell one unit is likely to be:
A) - 341.50
B) - 364.00
C) - 405.36
D) - 369.60
Q2) How is the working capital calculated?
A) Working capital need - Net cash
B) Fixed assets - Equity and Long-term liabilities
C) Current assets (except cash)- Current liabilities
D) Equity and Long-term liabilities - Fixed assets
Q3) A positive working capital need is typical of a firm operating in the distribution sector.
A)True
B)False
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Chapter 16: Statement of Cash Flows Construction
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Q1) Which financial statement provides a dynamic view of the changes in the cash position?
A) Statement of financial position/Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of changes in equity
Q2) Which of the following transactions decreases cash?
A) Charging depreciation.
B) Accruing taxes.
C) Purchasing equipment for cash.
D) Purchasing goods on credit.
Q3) The majority of activities or transactions that affect the income statement are included in which section of the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Managing activities
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Chapter 17: Statement of Cash Flows Analysis and Earnings
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Q1) Which of the following patterns of cash flow best describes that of a fast growing dynamic firm in a high technology,fast changing industrial sector:
Cash flow from operations Cash flow from investing Cash flow from financing
A) Generates cash Consumes cash Generates cash
B) Consume cash Generates cash Consumes cash
C) Generates cash Generates cash Consumes cash
D) Consumes cash Consumes cash Generates cash
Q2) How is the available cash flow calculated?
A) Available cash flow = Cash flow from operating activities (assumed to be positive)+ Cash flow from investing activities (assumed to be negative)
B) Available cash flow = Cash flow from operating activities + Cash flow from financing activities
C) Available cash flow = Cash flow from investing activities + Cash flow from financing activities
D) Available cash flow = Cash flow from operating activities - Dividends paid
Q3) Generally,the operating cash flow is expected to be positive.
A)True
B)False
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Chapter 18: Ratio Analysis, financial Analysis and Beyond
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Q1) Firms A and B have the same number of shares outstanding.Relative to firm A,firm B is less capital intensive,has a lower debt to asset ratio and pays a larger proportion of its earnings as dividends.On the basis of these facts,would you say that:
A) Firm A offers a higher level of risk to shareholders than firm B.
B) Firm A offers a lower level of profitability than firm B.
C) Firm A has more fixed assets as a proportion of its total assets than firm B.
D) Firm A book value per share is smaller than that of firm B.
Q2) If a business entity shows a high asset turnover ratio,it means that
A) It requires a high level of fixed assets to sustain is sales revenue year on year.
B) The profit generated year after year represents a high percentage of assets.
C) It always buys state of the art assets and discards older assets before they are fully obsolete.
D) It uses a small amount of assets to generate relatively large amounts of sales revenue.
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