Question

1*Agro-World Technologies Inc. incurred $ 1,000,000 to build a pilot plant to study the feasibility of building cheaper agricultural machinery for emerging economies. How would this cost be classified according to IAS 38 (Intangible assets)?

A) Research costs

B) Development Costs

C)Neither development nor research

D)It could be any research or development, according to the wishes of the administration

2. Under U.S. GAAP, if an entity issues 4% of preferred shares that gives shareholders the right to redeem the shares if the prevailing interest rates on the certificates of the 5 years of the deposit exceed s 4% How should these shares be accounted for in the books of the entity?

A) Initially as equity and then reclassified as a liability when the triggering event occurs

B) As a liability since the probabilities of the triggering event occurring are less likely.

C)As equity or a liability at the option of the entity

D)As a permanent part of the net worth, they will be debited when exchanging shares

3*Under a joint exposure draft issued by the IASB and the FASB in June 2010, Revenue from Contracts with Customers, which of the following is NOT one of the steps to be followed in the recognition of revenue in a wide range of transactions and industries?

A) Identify the contract with a client.

B) Do not separate the price of the transaction for separate performance obligations if the contract is a grouped contract where the goods and services are not sold separately.

C)Identify separate performance obligations in the contract.

D)Determine the price of the transaction.

Answer 1

Answer

1. B) Development costs

The cost was incurred to build a tangible asset a pilot plant for study. Hence, classified as development cost.

2. A) Initially as equity and then reclassified as a liability when the triggering event occurs.

Initially when the issue is done the entity recognize the issue as equity and when the rates exceed 4% it will be treated as liability.

3. B) Do not separate the price of the transaction for separate performance obligations if the contract is a grouped contract where the goods and services are not sold separately.

Steps of revenue recognition are as follows:

1. Identify the contract with a client

2. Identify separate performance obligations in the contract.

3. Determine the price of the transaction.

4.Allocate transaction price to the separate performance obligations.