Accounting and Financial Management Exam Practice Tests
Course Introduction
This course provides an in-depth introduction to the fundamentals of accounting and financial management, equipping students with the knowledge and analytical skills necessary to understand, interpret, and apply financial information in decision-making processes. Students will learn the principles of financial accounting, including the preparation and analysis of financial statements, as well as the foundational concepts of managerial accounting used in planning and controlling business operations. The course also covers essential aspects of financial management, such as budgeting, financial analysis, investment appraisal, and working capital management, preparing students to make informed financial decisions in various organizational contexts.
Recommended Textbook Issues in Financial Accounting 16th Australia Edition by Scott Henderson
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2
Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Q1) Discuss the role of the accounting bodies in the regulation of Australian accounting practice.
Answer: The accounting profession's attitude towards accounting standards has changed from regardingthem simply as recommendations during the 1960s to making them mandatory by the 1990s.InFebruary 2006,the APESB was established as an initiative of CPAA and the then Institute ofChartered Accountants in Australia (ICAA)primarily to develop and issue appropriate professionaland ethical standards for their membership.The IPA subsequently became a member of theAPESB.The initial focus of the APESB's activities was,inter alia,the review of existing professionaland ethical standards such as the old Code of Professional Conduct and MiscellaneousProfessional Statements (APS series)and guidance notes (GN series).The subsequent APESseries of ethical and professional standards approved by the APESB is mandatory for accountantswho are members of CPAA,CAANZ and the IPA.Broadly,these standards aim to regulatemembers' ethical conduct and the performance of professional services across various types ofprofessional engagements.
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Chapter 2: The Conceptual Framework: Purpose, reporting
Entity, the Objective of Financial Reporting, and Qualitative
Characteristics
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Q1) The major beneficiary from the development of a conceptual framework is expected to be:
A) governments
B) preparers of financial reports
C) accounting standard setters
D) managers
Answer: C
Q2) Describe the various factors in determining the existence of dependent users of financial statements.
Answer: Where the existence of dependent users is not readily obvious,then paragraph 19 of SAC1 states that it is necessary to look at other indicative factors,which include whether: there is a separation of management from the entity's owners or members the entity is of such economic or political importance that it is likely to have an impact on thewelfare of parties external to it; or its financial characteristics are such that it would have external stakeholders who need informationabout the entity.For example,the larger the entity,the more likely it is that it will have externalparties,such as employees or creditors,who need,but cannot demand,financial information.
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Chapter 3: The Conceptual Framework:
General
Purpose Financial Statements
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Q1) According to Framework 2014,when should income be recognised?
A) When cash is received
B) On the date listed on the statement of financial position
C) On a straight-line basis in accordance with fixed assets
D) When it is probable that an increase in economic benefits has occurred
Answer: D
Q2) Under the Framework,which of these is not an essential characteristic of an expense?
A) It must result in a decrease in equity
B) It must represent a flow
C) It must be associated with the earning of revenue
D) It must take the form of a decrease in an asset or an increase in a liability
Answer: C
Q3) Which of these is the strongest argument in favour of current replacement cost as an alternative to historical cost?
A) Current replacement cost provides a more reliable measure of performance
B) Current replacement cost provides a more relevant measure of performance
C) Current replacement cost provides a more reliable balance sheet
Page 5
D) Current replacement cost provides better information on cash flows
Answer: B
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Chapter 4: Fair Value Measurement
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Q1) What is likely to occur when a seller is in financial distress or is legally required to dispose of an asset or liability?
A) The transaction will not be orderly
B) Marketing activities are hot adhered to
C) The transaction price can be confidently relied upon
D) The objective of fair value measurement changes
Q2) How may an exit price be determined?
A) Direct observation
B) Estimation
C) Both A and B are correct
D) Neither A nor B is correct
Q3) At which date must an entity have access to the principal or most advantageous market?
A) Balance sheet date
B) Reporting date
C) Measurement date
D) The last date of the fiscal quarter
Q4) Discuss the three widely used valuation techniques utilised to determine the appropriate fair value measurement.
Q5) List and give examples of the inputs of the fair value hierarchy.
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Chapter 5: The Choice of Accounting Methods
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Q1) The order of preference set out in AASB 108 for reliance on authoritative pronouncements as a guide to selecting an accounting policy when there is no specific Australian standard is:
A) Related Australian Standards, International Accounting Standards, the Framework, accounting standards from other jurisdictions using a similar conceptual framework and accepted industry practices
B) Related Australian Accounting Standards, the definitions, recognition criteria in the Framework, accounting standards from other jurisdictions using a similar conceptual framework and accepted industry practices
C) Related Australian Standards and the Framework
D) None of the above
Q2) In relation to agency theory the statement that is not correct is:
A) The self-interest of various parties is often in conflict
B) It assumes that managers act opportunistically all of the time
C) It assumes that individuals act primarily to advance their own self-interest
D) None of the statements is incorrect, i.e., all are correct statements
Q3) Explain the meaning of creative accounting and discuss various factors that tend to limit its operation.
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Chapter 6: The Statement of Financial Position
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Q1) Identify and discuss the requirements concerning the classification of assets contained in AASB 101.
Q2) Discuss the concept of reserves and the sources from which they arise.
Q3) Which statement is incorrect?
A) Under AASB 101, assets and liabilities must not be set-off unless set-off is permitted or required by another accounting standard
B) Between 1979 and 1999, there was no Australian accounting standard dealing specifically with the statement of financial position
C) Under AASB 101, there is no materiality override
D) None of the statements is incorrect
Q4) Under AASB 101,the 'average time between the acquisition of materials entering into a process and their realisation in cash or as an instrument that is readily convertible into cash' is known as:
A) production cycle
B) production line
C) economic cycle
D) operating cycle
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Chapter 7: Accounting for Current Assets
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Q1) The cost flow method where cost of goods sold consists of the most recent goods acquired is:
A) Lower of cost or market
B) Last-in, first-out
C) First-in, first-out
D) Weighted average
Q2) As defined in AASB 102 'Inventories',these assets are:
A) Held for sale in the ordinary course of business
B) In the process of production
C) Both A and B are correct
D) Neither A nor B is correct
Q3) Discuss the disclosures relating to inventory required by AASB 102.Include a discussion on the disclosures required by not-for-profit entities.
Q4) Where an allowance for doubtful debts account is maintained,the accounting entry to write off a bad debt is:
A) debit bad debts; credit accounts receivable
B) debit allowance for doubtful debts; credit accounts receivable
C) debit doubtful debts expense; credit accounts receivable
D) none of the above
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) Which of these items does AASB 116 apply to?
A) Assets held for sale
B) Biological assets
C) Mineral rights and mineral reserves
D) None of the above
Q2) What are defined as immovable public facilities that are necessary to sustain living standards and concerned with essential services?
A) Current assets
B) Heritage assets
C) Property, plant and, equipment
D) Infrastructure assets
Q3) Which of the following is not a category of investment in non-current assets?
A) Property, plant, and equipment
B) Investment property
C) Financial investments in the form of share investments
D) Inventory
Q4) Explain and discuss how donated assets should be recorded in the accounts.
Q5) Should borrowing costs incurred during the construction period of an asset be expensed or capitalised? Discuss.
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Chapter 9: Accounting for Company Income Tax
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Q1) Compare and contrast the Tax Payable and Tax Allocation - Balance Sheet Approach methods of accounting for income tax.Which method is required under Australian Accounting Standards? Outline the main arguments for and against each of these methods.
Q2) Accounting standards require disclosure of the amount of:
A) deferred tax expense (or revenue) relating to changes in tax rates or tax laws
B) current tax expense (or revenue)
C) any adjustments for the current tax of prior reporting periods
D) all of the above
Q3) Permanent differences (between revenues and expenses for accounting and tax purposes):
A) can cause Deferred Tax Liabilities but not Deferred Tax Liabilities to arise
B) can cause both Deferred Tax Assets and Deferred Tax Liabilities to arise
C) can cause Deferred Tax Assets but not Deferred Tax Liabilities to arise
D) can cause neither Deferred Tax Assets nor Deferred Tax Liabilities to arise
Q4) Discuss the results of empirical research that examines whether tax-effect accounting should continue to be required.
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Chapter 10: Accounting for Intangible Assets
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Q1) The initial patent period granted by the Australian Government and the potential legal life of trademarks and brand names,are respectively:
A) 10 years; unlimited, provided they continue to be registered
B) 16 years; unlimited, provided they continue to be registered
C) 20 years; 16 years
D) 7 years; 7 years
Q2) AASB 138 prohibits recognising as intangible assets all internally generated:
A) costs of patents
B) brand names costs
C) trademark costs
D) all of the above
Q3) The initial recognition of the costs associated with intangible assets as an asset rather than an expense:
A) is consistent with the treatment of these costs for income tax purposes
B) is allowable provided that a future economic benefit exists
C) is allowable provided that the cost is material
D) all of the above
Q4) Compare the costs likely to be recorded for internally developed patents with those associated with a patent purchased in an arm's length transaction.
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Chapter 11: Accounting for Leases
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Q1) The viewpoint that assets and liabilities should be recognised in the accounts of the lessee is known as:
A) The lease capitalization approach
B) The operating lease approach
C) The financing lease approach
D) The fair value approach
Q2) Which of the following is not a lease disclosure requirement regarding the statement of cash flows?
A) Cash payments for the principal portion of the lease liability within financing activities
B) Cash payments for the interest portion of the lease liability as interest paid
C) Short-term lease payments and payments for leases of low-value assets
D) Disclosure of which line items include the right-of-use assets
Q3) For the lessor,what determines the presentation of the asset in the financial statements?
A) Length of the lease term
B) The type of lease
C) Amount of the guaranteed minimum lease payments
D) Depreciation method of the lessee
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Chapter 12: Accounting for Employee Benefits
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Q1) Which of the following is not a period of employment for long-service leave purposes?
A) Apprenticeship
B) Preconditional
C) Conditional
D) Unconditional
Q2) AASB 119 specifies that the present value basis of measurement of liabilities arising from employee benefits must be applied to which of the following?
A) Short term employee benefits
B) Long term employee benefits
C) Long service leave only
D) All employee benefits
Q3) How should a reporting entity account for the fair value of a compound instrument? Debt Component Equity Component
A) Cash-settled Cash-settled
B) Equity-settled Cash-settled
C) Equity-settled Equity-settled
D) Cash-settled Equity-settled
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15
Chapter 13: Accounting for Financial Instruments
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Q1) A futures contract provides for:
A) a purchase or sale now at a price to be determined based on future events
B) a purchase or sale in the future at a price to be determined when the transaction is completed
C) a purchase or sale in the future at a fixed price agreed at the date of the agreement
D) any of the above
Q2) The reasons for the use of financial instruments such as futures contracts,options and swaps include all of the following except:
A) to provide 'off-balance-sheet' financing opportunities
B) to reduce the amount of outstanding accounts receivable
C) to assist in the management of interest rate and foreign currency exchange risks
D) to enable the raising of funds by businesses
Q3) A buyer of a futures contract:
A) may let the contract expire with no action required
B) has an obligation to buy the underlying asset
C) has a right, but not an obligation, to buy the underlying asset
D) must pay the futures price when the contract is made
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Chapter 14: The Statement of Comprehensive Income
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Q1) Define income and explain how it differs from revenue.
Q2) Which term describes items of income and expense (including reclassification adjustments)that are not recognised in profit or loss as required or permitted by other Australian Accounting Standards?
A) Operating income
B) Other comprehensive income
C) Net income
D) Equity
Q3) The approach where profit is measured as the revenue from operations minus expenses from operations is known as:
A) the all-inclusive approach
B) the operating-profit approach
C) the comprehensive income approach
D) the working profit approach
Q4) Items not included in the operating profit calculation under AASB 101 are:
A) prior period adjustments
B) events outside ordinary operations
C) adjustments due to changes in accounting policies
D) all of the above
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Chapter 15: Revenue
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Q1) A vehicle and plot of land were purchased for $115 000. The fair value of the vehicle was $20 000,and the fair value of the land was $130 000 at the time of purchase. To the nearest dollar,what amount should be allocated to the vehicle?
A) $20 000
B) $57 500
C) $46 000
D) $15 333
Q2) Which of the following is required when identifying a contract?
A) The contract is notarised by a lawyer
B) The contract has commercial substance
C) Both A and B are required
D) Neither A nor B is required
Q3) Discuss the three types of repurchase agreements.
Q4) Which type of contract with customers is exempt from Paragraph 5 of AASB 15 'Revenue from Contracts with Customers'?
A) Lease contracts covered by AASB 117 'Leases'
B) Installment sales
C) Both A and B
D) Neither A nor B
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Chapter 16: The Statement of Cash Flows
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Q1) Although various types of financial statements related to cash flows began appearing in the early 20<sup>th</sup> century,what year introduced the first accounting standard related to this issue?
A) 1971
B) 1972
C) 1960
D) 1963
Q2) All of these are possible definitions of 'funds' except:
A) working capital
B) investment
C) total resources
D) cash
Q3) Studies such as Bowen,Burgstahler and Daley (1986)and Cheng and Hollie (2008)in the USA and Percy and Stokes (1992),Cotter (1996)and Clinch Sidhu and Sin (2002)in Australia have found:
A) cash flow data appeared to be similar to profit data
B) cash flow data was significantly different from profit data
C) there was no relation between profit and cash flow data
D) none of the above
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Chapter 17: Financial Reporting: Segment Reporting and Highlights Statements
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Q1) Which of the following items need not be shown when reporting primary segment information for a business?
A) Segment results
B) Segment revenues
C) Segment receivables
D) Segment liabilities
Q2) A business reports the following in its financial statements:
\[\begin{array} { l l }
\text { Net profit before tax } & \$ 150 \\
\text { Interest expense } & 20 \\
\text { Income tax expense } & 30 \\
\text { Total assets at the beginning of the year } & 700 \\
\text { Total assets at the end of the year } & 850
\end{array}\]
Its rate of return on total assets is:
A) 19.4%
B) 21.9%
C) 16.8%
D) 4.83%
Q3) Discuss the benefits of the 'management approach' adopted by AASB 8.
Page 20
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Chapter 18: Further Financial Reporting Issues
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Q1) Which of the following is not a primary feature of a 'reporting entity'?
A) The extent of government regulation of the business
B) Its political or economic influence or importance
C) Financial characteristics such as size or level of indebtedness
D) Separation of management from ownership
Q2) A small proprietary company:
A) has operating revenue of $25 million or more
B) has assets of less than $12.5 million
C) has more than 50 employees
D) A and C above
Q3) Which of the following statements is not true of Special Purpose financial statements?
A) They are implicitly the reports prepared by non-reporting entities
B) They must state that the financial statements are special purpose financial statements
C) They must disclose the significant accounting policies adopted in the preparation and presentation of the Special Purpose Financial Statements
D) None; all statements are true
Q4) Explain the significance of related-party transactions.
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Chapter 19: Accounting for Extractive Industry
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Q1) Describe the activities involved in the pre-production phase in the production of minerals,oil and gas and the accounting treatments that might be allowed for costs arising from this phase.
Q2) Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources defines 'economically recoverable reserves' of minerals,oil or gas as those which can be expected to be profitably:
A) extracted and sold under current and foreseeable economic conditions
B) extracted, processed and sold under current and foreseeable economic conditions
C) extracted, processed and sold under foreseeable economic conditions
D) processed and sold under current economic conditions
Q3) Reasons for the AASB 6 to allow exploration and evaluation costs to be capitalised under certain circumstances includes which of the following?
A) when the costs are expected to be recouped
B) when the rights to tenure of the area of interest are current
C) when a reasonable assessment of the viability of the area of interest can be made
D) all of the above
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Chapter 20: Accounting for Agricultural Activity
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Q1) In what ways is agricultural activity different from other forms of assets? In what ways are they similar to other forms of assets? How do these differences,and similarities,affect accounting for agricultural activity?
Q2) Australian Accounting Standard AASB '141 Agricultural Activity' requires disclosure of the following items of information EXCEPT:
A) cost of agricultural produce is its fair value less costs to sell at the point of harvest;
B) specific requirements for government grants related to a biological asset
C) specific disclosures in relation to biological assets
D) the method of calculating the replacement cost of biological assets
Q3) Paragraphs 54 to 56 require additional disclosures for biological assets where fair value cannot be reliably measured.These disclosures include which of the following:
A) the depreciation method used
B) the range of estimates within which market value
C) the equivalent rates used
D) the net carrying amount and the accumulated depreciation
Q4) Describe the sustained-yield method and the standard method of measuring forestry assets.
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Chapter 21: Accounting for Superannuation Entities
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Q1) The general purpose financial statements of a superannuation plan should answer the following question(s):
A) Is the plan solvent?
B) Will the plan remain solvent?
C) Are the trustees diligently performing their duties?
D) All of the above
Q2) Australian Accounting Standard AAS 25 'Financial Reporting by Superannuation Plans' requires that,wherever possible,the amount recorded for accrued liabilities of a defined benefit superannuation plan:
A) include allocated and unallocated contributions
B) be measured in present value terms using a published discount rate
C) equal the assets of the plan less the sum of tax and sundry liabilities
D) be measured in present value terms using an appropriate, risk-adjusted discount rate
Q3) Discuss some of the major differences between the requirements of AAS 25 and AASB 1056.
Q4) Discuss some of the changes to MS Plan's Income Statement under the AASB 1056 requirements.
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Chapter 22: Accounting for Insurance
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Q1) Aside from details of income,expenses,assets,liabilities,and equity,what must life insurers disclose in financial statements?
A) Regulatory capital information
B) Disaggregated information
C) Managed funds
D) All of the above are correct
Q2) According to AASB 1023,how are assets backing general insurance liabilities to be measured?
A) Fair value
B) Book value of the insurer
C) Book value of the insured party
D) Historical cost
Q3) Underwriting and investment are the two activities of ________.
A) Fixed-fee service contracts
B) Life insurance
C) General insurance
D) All insurance categories
Q4) List and explain the three broad classes of assets insurers have.
Q5) List and describe the five main types of traditional activities related to life insurance.
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Chapter 23: International Accounting Standards, harmonisation and Convergence
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Q1) The case against principles-based standards is that they 'typically require preparers and auditors to exercise judgement in accounting for transactions and events without providing a ____________ to frame that judgement.
A) insufficient structure
B) sufficient structure
C) insufficient information
D) sufficient information
Q2) In 2005,the adoption of IFRSs had led to:
A) greater transparency and comparability in financial reporting
B) an increase in the cost of capital
C) less market liquidity and cross-border investment
D) an increase in equity
Q3) A notable exception was the accounting treatment of intangible assets for the IFRS resulted in a significant _________ in the recognition of internally generated intangibles compared to the Australian standard.
A) increase
B) reduction
C) elimination
D) procurement
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Chapter 24: Foreign Currency Translation
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Q1) AASB 121 requires the translation of financial statements in which of the following circumstances?
I.if the domestic currency of the foreign operation is not the same as the functional currency of its parent
ii) if the functional currency of the foreign operation is not the same as the functional currency of its parent
iii) if the functional durrency of the econornicentity is not its presentationcurrency
iv) if the presentationarrency of the econornicentity is not its functional currency
A) i and ii
B) ii and iii
C) iii and iv
D) i and iii
Q2) There are four methods suggested for translating foreign currency financial statements.Identify these four methods and explain the translation methods used under each.
Q3) Explain,using simple numerical examples,the hedging of currency risk.
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Chapter 25: Accounting for Corporate
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Q1) Corporate social responsibility is best thought of as:
A) the need to meet the objective of maximising the wealth of a company's ordinary shareholders
B) adopting safe work practices for all employees
C) consideration of the impact of a company's activities on the welfare of society as a whole
D) producing safe, as well as reliable, products
Q2) When an entity's net emissions are greater than the permits they hold,at the end of the year they may:
A) purchase approved carbon offsets
B) purchase unused emission permits from other entities
C) have to pay an emissions fee to the government
D) all of the above
Q3) The term used to describe any group or individual who can be affected by or is affected by the achievement of the organisation's objectives is:
A) shareholder
B) entity
C) stakeholder
D) lobby group
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Chapter 26: Ethics in Accounting
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Q1) Which of the following does not fall under the ethical principle of "beneficence"?
A) objectivity
B) professional behaviour
C) confidentiality
D) professional competence and due care
Q2) Ethical issues pertain primarily to
A) individuals.
B) those in the financial industry.
C) licensed professionals.
D) communities.
Q3) Ethical parochialism:
A) assumes that ethical behaviour should protect the individuals belonging to the 'in group'
B) suggests that the behaviour of individuals should be constrained by the law and the conventions of fair play
C) is evidenced when individuals seek to maximise their own utility
D) suggests that ethical behaviour should be concerned with the good of all humankind and that individuals are all of equal value
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