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Question ISTQ4

Intermediate Accounting (Kieso)
Found in: Page 384

Short Answer

Under IFRS:

(a) the entry to record estimated uncollected accounts is the same as GAAP.

(b) loans and receivables should only be tested for impairment as a group.

(c) it is always acceptable to use the direct write-off method.

(d) all financial instruments are recorded at fair value.

The correct option is a.

See the step by step solution

Step by Step Solution

Definition of Financial Instrument

A legal document containing an agreement with a monetary value is a financial instrument. It might be a cash instrument or a derivative instrument.

Explanation for Correct Option

The entry for recording the estimated uncollected accounts under IFRS is the same as GAAP. Journal entry is a debit to bad debt expenses and credit to provision/allowance for doubtful accounts. Thus, option a is correct.

Explanation for Incorrect Options

(b) Other than loans and receivables, intangible and fixed assets are also tested for impairment to prevent overstatement.

(c) Direct write-off method is used only when the business entity decides that customer will not pay. Otherwise, the allowance method is used.

(d) All financial instruments are not recorded at their fair value. Some qualification criteria are used to report the financial instrument’s fair value.

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