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Chapter 13: Q2ISTQ (page 658)

Which of the following statements is correct?

(a) IFRS permits the fair value option for the equity method of accounting.

(b) GAAP permits recovery of impairment losses.

(c) Under IFRS, non-trading equity investments are accounted for at amortised cost.

(d) IFRS and GAAP both have a trading investment classification

Short Answer

Expert verified

Option (d) is correct option

Step by step solution

01

Definition of GAAP

It stands for Generally Accepted Accounting Principles; it contains all the principles and rules which are used in the accounting of the company.

02

Correct statement

All of the given statements are incorrect except for one real piece of information. Statement four is true that IFRS and GAAP both have a trading investment classification

Hence, option (d) is correct.

Option (a) is incorrect because the IFRS does not permit an equity method for accounting.

Option (b) is incorrect because GAAP does not permit the recovery of impairment losses.

Option 漏 Is incorrect because non-trading securities are accounted for fair value in IFRS.

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Most popular questions from this chapter

Faith Battle operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her the various payroll deductions that she will have to account for, including their potential impact on her financial statements, if she hires additional staff.

(a) Assuming no Fair Value Adjustment account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Company鈥檚 available-for-sale debt securities have a fair value of \(60,000 below cost.

(b) Assume the same information as part (a), except that Laura Company has a debit balance in its Fair Value Adjustment account of \)10,000 at the beginning of the year. Prepare the adjusting entry at year-end.

Define a provision, and give three examples of a provision.

How does the acid-test ratio differ from the current ratio? How are they similar?

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable
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