IFRS vs GAAP CPA Exam Questions

Alright in this video I've got five IFRS questions for you

So let's just get started. The first one, under IFRS, how does a gain or loss qualify as extraordinary

A, items are not labeled extraordinary under IFRS. B, it has to be infrequent in occurrence

occurrence, C, it has to be both unusual and infrequent in nature, or D, it has to be unusual in nature

The answer here is A. Items are not labeled extraordinary under GAP or under IFRS

Next question. Under GAP, companies can choose from LIFO, FIFO, or AVERS

for inventory cost methods. What inventory cost methods are allowed under IFRS

A is only FIFO and averaging. B, only LIFO and averaging. C, only averaging

Or D, all three methods are allowed. The answer is that under IFRS

LIFO is not allowed. So that would leave us with A. Felines, FIFO and Averaging

Specific identification is allowed under IFRS as well in certain circumstances but in general for the test you going to see questions like this So the answer is FIFO and averaging Just remember that under IFRS LIFO is not allowed

It's not an inventory cost method that you can use. Next question

If Los Poyos Armanos pays $1,000 in interest on a long-term debt

how is it reported on the statement of cash flows under IFRS and GAAP

Is it A, under both Gap and IFRS, the interest is reported as an operating activity

Or B, under Gap, the interest is a financing activity and under IFRS it is an operating activity

C, under both Gap and IFRS, the interest is a financing activity

D, under Gap, the interest is an operating activity, but under IFRS it can be either an operating activity or a financing activity

The answer here is D. Under Gap, interest expense and interest revenue is classified as an operating activity for the statement of cash flows

But under IFRS, interest expense can be either an operating activity or a financing activity

Next question, if Gus Fring leased an industrial laundry machine for his warehouse

and the lease was for six years, but the expected life of the machine was 10 years

would this lease be classified as an operating lease or a capital lease under Gap and IFRS if there is no transfer of title in the contract nor a bargain purchase option Also the present value of the future payments do not make up a significant portion of the asset fair value

So the answers are A, the lease is an operating lease under both Gap and IFRS

B, the lease is an operating lease under Gap but a capital lease under IFRS

C, the lease can be either operating or capital under GAAP, but under IFRS it is an operating lease

Or D, the lease isn't operating, it is an operating lease under GAAP, but can either be operating or capital under IFRS

Now, this is a good question because it makes this simple to remember

this was something that was hard for me when I was trying to kind of memorize the differences between GAP and IFRS

But what it is, in this case, none of the GAP requirements for capital lease are met in this situation

So it would be an operating lease under GAP. Under IFRS, the only thing that needs to be there for it to be classified as a capital lease is

that the life of the lease has to be a major portion of the expected life of the asset

And 60% meets that definition. So under IFRS, this could be either a operating lease or a capital lease

So it can be either one. So the answer is D Next question Vomino pest control is being sued for 10 million and their lawyer estimates there a 51 chance of losing 8 million

and a 49% chance of losing nothing. What should Vominoos record as a loss related to the lawsuit under GAP and IFRS

A, record a loss of $8 million under both Gap and IFRS

B, record a loss of 10 million under IFRS and 8 million under Gap

C, do not record any loss under either method. Or D, record a loss of 8 million under IFRS and no loss under Gap

So the answer here is D. Under Gap, you would not record a loss in this case

Under IFRS, a contingent loss must be recognized. if it is more likely than not

So if it's more likely than it is not likely, then you recognize the contingent loss, the liability

So a 51% chance is kind of that tipping point where it is more likely than it's not likely

So 51%. In this case, you would record the liability at $8 million

Under GAB, the threshold or the word they use is a loss must be probable, which is defined as likely

51% does not meet that. So under GAAP, you wouldn't record a loss under GAAP

So those are the five IFRS questions for today, and I hope you learn something new