Question

1*Financial statements of Kansas Ltd (Fr) for 2X13 are authorized by management and auditors on February 15, 2X13 for issuance on February 28, 2X13. On February 20, Kansas settles as a plaintiff (payer of settlement) a 5 million Euro lawsuit. CFO of Kansas Ltd (Fr) makes a second decision regarding the presentation of the financial statements and decides this settlement does not need to be recognized in 2X13. He is:

a) In compliance with the IFRS

b) Committing fraud

c) Manipulating Data

2*US GAAP and the IFRS differ on their definition of financial assets in that only the IFRS defines it as:

a) Cash

b) An equity instrument (of another entity)

c) A contractual right to receive cash

d) There is no difference in the definition between US GAAP and the IFRS

3*Fiduciary funds are reported

a-As additional information is required

b-By type of fund in the financial statements of the fund

c-By type of fund in the financial statements of the entire government

d-Both in the financial statements of the fund and in the financial statements of the entire government

Answer 1

1. Answer- A

Companies prepare a "Contingent Liability" whenever they enter in a litigation. So, after the payment that contingent amount should be removed from the liability side and should have been appeared in Income statement as "The Expense".

Journal Entry-

A. Payment for Settlement A/C Debit - 5 million

To Cash/Bank A/C Credit- 5 million

B.Contingent Liability A/C Debit- 5 million

To Payment of Settlement A/C - 5 million

So, the CFO should have disclosed this transaction. Since, he failed to do so its against IFRS compliance.

2. Answer- C

Definition of Financial Assets as per IFRS- A financial asset is a intangible asset whose value is derived from a contractual claim, such as bank deposits, bonds, and stocks. These assets(i.e., Financial Assets) are usually more liquid than other tangible assets, such as commodities or real estate, and may be traded on financial markets.

Whereas, US GAAP takes into account cash as well to record the total Financial Assets.

3. Answer- A

As per GASB34 - Excludes the reporting of fiduciary fund in government's financial statements. But it can be reported as additional information.