Question Details

Contingent assets need not be disclosed in the financial statements 



1.	Under IFRS, which of the following is used to measure a liability, if a range of estimates is predicted and no amount in the range is more likely than any other amount in the range?
	a.	Minimum of the range
	b.	Maximum of the range
	c.	Mid-point of the range
	d.	Average of the range

	Correct Answer: C
Explanation: Under IFRS, if a range of estimates is predicted and no amount in the range is more likely than any other amount in the range, the “mid-point” of the range is used to measure the liability.

2.	Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed:
	a.	by the financial reporting date.
	b.	by issue date of the financial statement.
	c.	either by the financial statement date or before the date the financial statement is issued.
	d.	after the maturity date of the obligation.
	Correct Answer: A
Explanation: Under IFRS, a company must classify its short-term obligation as a current liability if the refinancing was not completed by the financial reporting date. Only if the refinancing was completed before the financial reporting date, can the company classify the obligation as non-current.

3.	Examples of contingent assets include all of the following except:
	a.	unrealized gain on the sale of investments.
	b.	pending lawsuit with a probable favorable outcome.
	c.	possible refunds from the government in tax disputes.
	d.	promise of land to be donated by city as an enticement to move manufacturing facilities.
	Correct Answer: A
Explanation: Typical contingent assets include: possible receipts of monies from gifts, donations, bonuses, possible refunds from the government in tax disputes, and pending court cases with a probable favorable outcome.

4.	Contingent assets need not be disclosed in the financial statements or in the notes if they are:
	a.	virtually certain to occur.
	b.	probable to occur.
	c.	likely to occur.
	d.	possible but not probable to occur.
Correct Answer: D
Explanation: If realization of the contingent asset is possible but not probable to occur, no disclosure is required.

5.	For which of the following areas a provision may be recognized in the financial statement?
	a.	Possibility of war
	b.	Business recession
	c.	Warranties
	d.	Strike





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