IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

MULTIPLE·CHOICE QUESTIONS 1. XYZ Inc. changes its method of valuation of inventories from weighted-average method to first-in , first-out (FIFO) method. XYZ Inc. should account for this change as (a) A change in estimate and account for it pro– spectively. (b) A change in accounting policy and account for it prospectively. (c) A change in acco unting policy and account for it retrospectively. (d) Account for it as a correction of an error and account for it retrospectively. Answer: (c) 2. Change in accounting policy does not include (a) Change in useful life from 10 years to 7 years. (b) Change of method of valuation of inventory from FIFO to weighted-average. (c) Change of method of valuation of inventory from weighted-average to FIFO. (d) Change from the practice (convention) of Answer: (a) 3. When a public shareholding company changes an accounting policy voluntarily, it has to (a) Inform shareholders prior to taking the deci– sion. (b) Account for it retrospectively. (c) Treat the effect of the change as an extraor– dinary item. (d) Treat it prospectively and adjust the effect of the change in the current period and future periods. Answer : (b) 4. When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an entity should (a) Treat the entire change as a change in esti– mate with appropriate disclosure. (b) Apportion, on a reasonabl e basis, the rela– tive amounts of change in estimate and the change in accountin g policy and treat each one accordingly. (c) Treat the entire change as a change in ac– counting policy . (d) Since this change is a mixture of two types paying as Christmas bonus one month ' s sal– ary to staff before the end of the year to the new practice of paying one-half month ' s salary only.

(a) Retrospectively change the depreciation charge based on the revised salvage value. (b) Change the depreciation charge and treat it as a correction of an error. (c) Change the annual depreciation for the cur– rent year and future years. (d) Ignore the effect of the change on annual de– preciation, because changes in salvage values would normally affect the future only since these are expected to be recovered in future.

Answer: (c)

of changes, it is best if it is ignored in the year of the change; the entity should then wait for the followin g year to see how the change develops and then treat it accord– ingly.

Answer: (a) 5. When an independent valuation expert advises an entity that the salvage value of its plant and machin– ery had drastically changed and thus the change is material, the entity should