Question 2ISTQ - Intermediate Accounting (Kieso)

Question

2. Current assets under IFRS are listed generally: 

(a) by importance. 

(b) in the reverse order of their expected conversion to cash. 

(c) by longevity. 

(d) alphabetically.

Step-by-Step Solution

Answer

The correct option is (b) in the reverse order of their expected conversion to cash.

Definition of IFRS

The business entity wishing to compare its business with companies worldwide must adopt IFRS for financial reporting purposes. IFRS is expanded as international financial reporting standards.

The explanation for correct option

Under IFRS, the business entity reports current assets opposite GAAP. Under GAAP, current assets are reported according to their liquidity. IFRS reports those current assets that require longer time to get converted into cash.

The explanation for incorrect options

(a) IFRS does not report current assets as per their importance. Instead, they are reported in just reverse order as reported under GAAP.

(c) Longevity is an incorrect option because the asset’s life is not used to report the current assets.

(d) Current assets are listed as liquidity instead of alphabetical order.