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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
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.
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
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
(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)