PFRS for Small and Medium-sized Entities

Welcome to your PFRS for Small and Medium-sized Entities Quiz!

Please answer the questions and submit it at the end of the quiz. This quiz has the following properties

Mode: Multiple Choices
Number of questions to take (from many in the database): 25 items
Order: Ramdon questions
Scoring: 1 point each, zero-based rating!
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Which of the descriptions below best describes the qualitative characteristic ‘reliability’?

(a) Information is reliable when it is measured precisely (ie little or no uncertainty in measurement)

(b) Information is reliable when it is measured at historical costs

(d) Information is reliable when it is free from material error and bias and represents faithfully that which it either purports to represent or could reasonably be expected to represent

Which of the following entities must not describe its financial statements as being in compliance with the IFRS for SMEs even if it is required by law to prepare its financial statements in accordance with the IFRS for SMEs?

an entity that holds assets in a fiduciary capacity for a broad group of outsiders as its primary business (eg a bank).

an entity that operates two divisions in each of its retail outlets—a supermarket and a bank (which holds assets in a fiduciary capacity for a broad group of outsiders)). Both divisions are primary businesses of the entity.

an entity that operates primarily as supermarket chain. However, it also enters into insurance contacts (as the insurer) with its customers. The entity’s short-term insurance and life insurance operations are small relative to the size of its supermarket operations and are operated from the entity’s supermarkets.

an entity holds assets in a fiduciary capacity for a broad group of outsiders for reasons incidental to a primary business (eg a law firm that is legally required to hold in trust advances from its clients for legal services to be rendered).

cases (a), (b) and (c) above.

cases (a)–(d) above.

The qualitative characteristic ‘prudence’ implies that in preparing financial statements management should

(a) have a bias toward understating assets and income and overstating liabilities and expenses

(b) have a bias toward overstating assets and income and understating liabilities and expenses

(d) if permitted to do so, use full IFRSs rather than the IFRS for SMEs

An entity made an unusually high profit for the year ended 31 December 20X7 because it negotiated a significantly lower cost price for its main raw material at a time when the selling price of its products was rising sharply. Management does not want to make public the unusually high profit because they believe that knowledge of the entity’s profitability would result in their customers seeking to negotiate lower selling prices when purchasing goods from the entity. Consequently, management would like to decrease profit for the year by recognising a provision for unforeseen possible expenses.

(a) Because creation of the provision is prudent, it is acceptable accounting

(b) Because creation of the provision is common practice in the jurisdiction in which the entity operates, it is acceptable accounting

(d) Because they do not satisfy the definition of a liability, the entity cannot create a provision for unforeseen possible expenses

If the changes to the equity of an entity during the periods for which financial statements are presented arise only from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy:

(a) the entity presents the income statement but not the statement of changes in equity.

(b) the entity presents the statement of comprehensive income but not the statement of changes in equity.

(d) the entity presents the statement of comprehensive income and the statement of changes in equity.

(e) the entity presents a single statement of income and retained earnings.

(f) the entity may present the statement/s listed in either (c), (d) or (e).

Materiality depends on:

(a) the nature of the omission or misstatement.

(b) the size of the omission or misstatement.

(d) None of the above

The objective of general purpose financial statements prepared in accordance with the IFRS for SMEs is:

(a) to support the reporting entity’s annual tax return

(b) to provide the government of the jurisdiction in which the reporting entity operates with financial information for use in government statistics or government planning or both

(d) to provide information about the financial position, performance and cash flows of the entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs (eg investors and creditors)

Expenses are recognised in comprehensive income (ie profit or loss or other comprehensive income)

(a) using the matching bases (ie on the basis of a direct association between the costs incurred and the earning of specific items of income)

(b) using an accrual basis of accounting

(d) at the discretion of the owners of the entity

Items of dissimilar nature or function:

(a) must always be presented separately in financial statements.

(b) must not be presented separately in financial statements (ie must be aggregated in the financial statements).

(d) either separately presented or aggregated depending on the accounting policy of the entity

An entity that is not publicly accountable must make an explicit and unreserved statement of compliance with the IFRS for SMEs:

(a) if the entity complies with all the requirements of IFRS for SMEs.

(b) if the entity complies with the vast majority of the requirements of IFRS for SMEs.

(d) if the entity complies with full IFRSs.

Section 4 Statement of Financial Position of the IFRS for SMEs:

(a) prescribes information to be presented in a statement of financial position.

(b) prescribes the sequence or format in which items are to be presented in the statement of financial position.

(c) does not permit the presentation of the additional line items, headings and subtotals in the statement of financial position in addition to those set out in paragraph 4.2.

(d) prescribes the recognition and measurement criteria for real accounts.

Materiality depends on:

(a) the size of the item

(b) the nature of the item

(d) the requirements of the regulators

(e) all of the above

When the classification of items in its financial statements is changed, the entity:

(a) must not reclassify the comparative amounts.

(b) can choose whether to reclassify the comparative amounts.

(d) none of the above

Liabilities that an entity expects to settle in its normal operating cycle are:

(a) classified as non-current liabilities

(b) classified as current or non-current liabilities in accordance with other criteria

(d) classified as either current on non-current liabilities depending on the company policy

How many measurement bases does the IFRS for SMEs specify for the measurement of assets?

(a) One—historical cost

(b) One—fair value

(d) Many—including historical cost, fair value, value in use, estimated selling price less costs to complete and sell, and the equity method

When there is much variability in the duration of the entity’s normal operating cycle, the operating cycle is measured at:

(a) its mean value

(b) its median value

(d) three years

Fair presentation requires a faithful representation of the effect of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in Section 2.

Fair presentation, in accordance with the IFRS for SMEs, is presumed to result from:

(a) compliance with the IFRS for SMEs by an entity that has public accountability.

(b) compliance with the IFRS for SMEs, with additional disclosures where necessary, by an entity that has public accountability.

(d) compliance with the IFRS for SMEs, with additional disclosures where necessary, by an entity that does not have public accountability.

Which of the following entities is not a going concern?

(a) management intends to liquidate the entity.

(b) management intends to cease the entity’s operations.

(d) all of cases (a) to (c) above.

The accrual basis of accounting that underlies financial information prepared in accordance with the IFRS for SMEs:

(a) specifies that expenses are recognised as an expense in the period in which the income they generate is recognised (a matching concept)

(b) specifies that an entity must be conservative in its accounting (ie understate assets and income and overstate liabilities and expenses)

(c) specifies that an element (asset, liability, equity, income and expense) is recognised when it satisfies the definition and recognition criteria for an element

(d) specifies that management discretion determines the timing of the recognition of income and expenses

Which of the following satisfies the definition of a liability?

(a) The income generating capacity of a snow ski resort is greatly influenced by the amount of snowfall. Snowfall is erratic. To reduce the volatility in its reported profit, a snow ski resort would like to recognise a liability (and corresponding expense) in years of high snowfall (a provision for warm weather) and release that provision to income in years of low snowfall.

(b) An entity ‘self insures’ its assets against loss or damage, ie it opens a separate bank account (in the company’s name) into which it transfers each month an amount equal to the market rate for damage/loss insurance cover. When the entity suffers damage or loss its uses the money in the separate bank account to restore or replace the damaged or lost item. To reduce volatility in its reported profit, the entity would like to recognise a liability (and corresponding expense) in the period in which it transfers cash into the separate bank account (a provision for self insurance) and decrease that provision when cash is paid out of the separate bank account to replace or restore a damaged or lost item.

(c) An entity is being sued for allegedly breaching the patent of one of its competitors. The entity’s legal counsel believes that it to be more likely than not that the entity will lose the case.

(d) All of the above (ie (a) to (c))

(e) None of the above

Assets to be sold, consumed or realised as part of the entity’s normal operating cycle are:

(a) current assets

(b) non-current assets

(d) wasting assets

Which of the following is not an element for which there is a concept in Section 2?

(a) Asset

(b) Liability

(d) Expense

(e) Other comprehensive income

the entity is a subsidiary whose parent uses full IFRSs.

the entity is an associate of an investor that uses full IFRSs.

the entity is a jointly controlled entity whose venturers (investors) use full IFRSs.

cases (a), (b) and (c) above.

none of the cases (a)–(c) above.

In which of the following situations can an entity that does not have public accountability claim compliance with the IFRS for SMEs in its financial statements?

The entity prepares its financial statements in accordance with local GAAP that is substantially the same as the IFRS for SMEs.

The entity prepares its financial statements in accordance with local GAAP that is, except in name, word-for-word the same as the IFRS for SMEs.

The entity prepares its financial statements in accordance with the IFRS for SMEs.

In both cases (b) and (c) above.

Rather than distributing its excess cash to its shareholders an entity acquired a rare painting. The painting is held for capital appreciation rather than for: (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business.. The IFRS for SMEs does not explicitly specify how to account for investments in paintings. How should the entity account for its investment in the painting?

(a) Because the IFRS for SMEs does not explicitly specify how to account for an investment in a painting, on initial recognition the entity would recognise the expenditure on the painting as an expense in profit or loss.

(b) Because the carrying amount of the painting will be recovered through capital appreciation (or possibly rental to others), the relevant information that users’ of the entity’s financial statements would want about the painting is its current market value. Consequently, by analogy to the accounting specified for investment property (see Section 16 Investment Property) the entity should initially measure the painting at cost and thereafter at fair value, with changes in fair value being recognised in profit or loss.

(c) Same as (b). However, if the fair value of the painting cannot be measured reliably without undue cost or effort on an ongoing basis then, by analogy to Section 17 Property, Plant and Equipment (which includes investment property whose fair value cannot be determined reliably without undue cost or effort on an ongoing basis) the entity would account for the painting using the cost-depreciation-impairment model.

(d) Because the IFRS for SMEs does not explicitly specify how to account for an investment in a painting the entity must, in accordance with paragraph 2.46, measure the painting asset at its historical cost and subsequently, in accordance with paragraph 2.49, measure it at cost less impairment.