ACCT 635
Financial Reporting
MIDTERM EXAM REVIEW
©LU 2024/2025
,1. Multiple Choice: Which of the following is not a component of
comprehensive income under IFRS?
a) Revaluation surplus
b) Foreign currency translation adjustments
c) Changes in the value of financial assets available for sale
d) Dividends declared
Answer: d) Dividends declared
Rationale: Dividends declared are considered distributions to
shareholders and are not included in comprehensive income,
which typically includes all non-owner changes in equity.
2. Fill-in-the-Blank: The process of adjusting the carrying amount
of an investment in an associate to recognize the investor's share of
changes in the associate's equity subsequent to acquisition is known
as ________.
Answer: Equity Method
Rationale: The equity method is used to account for investments
in associates and requires adjustments to the investment's carrying
amount.
3. True/False: Under IFRS, revaluation of property, plant, and
equipment is allowed and can be conducted annually.
Answer: True
©LU 2024/2025
, Rationale: IFRS allows for the revaluation of property, plant, and
equipment, and it can be done with a frequency that ensures the
carrying amount does not differ significantly from fair value at the
balance sheet date.
4. Multiple Response: Select all that apply. Which of the following
are recognized in other comprehensive income?
a) Unrealized gains and losses on available-for-sale financial assets
b) Gains and losses from the derecognition of financial assets
measured at amortized cost
c) Actuarial gains and losses on defined benefit plans
d) Changes in fair value of hedging instruments in a cash flow
hedge
Answer: a), c), d)
Rationale: Items a), c), and d) are all examples of components
that would be recognized in other comprehensive income, while b)
is recognized in profit or loss when the financial asset is
derecognized.
5. True/False: The equity method of accounting for investments
requires the investor to report its share of the investee's net income
or loss in the period it is reported by the investee.
Answer: True
©LU 2024/2025
Financial Reporting
MIDTERM EXAM REVIEW
©LU 2024/2025
,1. Multiple Choice: Which of the following is not a component of
comprehensive income under IFRS?
a) Revaluation surplus
b) Foreign currency translation adjustments
c) Changes in the value of financial assets available for sale
d) Dividends declared
Answer: d) Dividends declared
Rationale: Dividends declared are considered distributions to
shareholders and are not included in comprehensive income,
which typically includes all non-owner changes in equity.
2. Fill-in-the-Blank: The process of adjusting the carrying amount
of an investment in an associate to recognize the investor's share of
changes in the associate's equity subsequent to acquisition is known
as ________.
Answer: Equity Method
Rationale: The equity method is used to account for investments
in associates and requires adjustments to the investment's carrying
amount.
3. True/False: Under IFRS, revaluation of property, plant, and
equipment is allowed and can be conducted annually.
Answer: True
©LU 2024/2025
, Rationale: IFRS allows for the revaluation of property, plant, and
equipment, and it can be done with a frequency that ensures the
carrying amount does not differ significantly from fair value at the
balance sheet date.
4. Multiple Response: Select all that apply. Which of the following
are recognized in other comprehensive income?
a) Unrealized gains and losses on available-for-sale financial assets
b) Gains and losses from the derecognition of financial assets
measured at amortized cost
c) Actuarial gains and losses on defined benefit plans
d) Changes in fair value of hedging instruments in a cash flow
hedge
Answer: a), c), d)
Rationale: Items a), c), and d) are all examples of components
that would be recognized in other comprehensive income, while b)
is recognized in profit or loss when the financial asset is
derecognized.
5. True/False: The equity method of accounting for investments
requires the investor to report its share of the investee's net income
or loss in the period it is reported by the investee.
Answer: True
©LU 2024/2025
