Accounting and Financial Reporting Standards
Pre-Test Questions
Course Introduction
This course provides a comprehensive overview of accounting principles and financial reporting standards that guide the preparation and presentation of financial statements in accordance with generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Students will explore the conceptual framework underlying financial accounting, learn about the recognition, measurement, and disclosure requirements for various elements of financial statements, and analyze the impact of accounting standards on business decision-making and stakeholder communication. Emphasis is placed on comparing and contrasting key differences between major reporting standards and understanding the implications of evolving regulations in the global financial landscape.
Recommended Textbook
Financial Accounting and Reporting A Global Perspective 5th Edition by Herv Stolowy
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Page 2
Chapter 1: Accounting: the Language of Business
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Q1) The usefulness of financial information is enhanced if it is comparable,verifiable,timely and relevant.
A)True
B)False
Answer: False
Q2) The language of accounting needs to be sufficiently general:
A) To be easily understandable
B) To be applicable to a variety of situations and business models
C) To be flexible
D) To be reliable
Answer: B
Q3) Which of the following describes the flow of information allowing control by the 'delegator'?
A) Financial accounting
B) Reporting
C) Managerial accounting
D) Corporate finance
Answer: B
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3
Chapter 2: Introduction to Financial Statements
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Q1) That part of the profit which is not distributed is considered to be:
A) Capital
B) Dividends
C) Retained earnings
D) Income
Answer: C
Q2) Which of the following is a result of revenues being greater than expenses?
A) A loss.
B) A sale.
C) A profit.
D) A dividend.
Answer: C
Q3) An asset is a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.
A)True
B)False
Answer: True
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Chapter 3: Financial Statements: Interrelations and Construction
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Sample Questions
Q1) The income statement impact on the statement of cash flows is through revenues and expenses collected or paid during the year.
A)True
B)False
Answer: True
Q2) Which of the following statements is true?
A) The accounts kept by a company constitute legal evidence,must be easily accessible to controllers and comply with laws and regulations.
B) The accounts kept by a company are a source of management information.
C) The accounts kept by a company are an instrument for business management.
D) All of these.
Answer: D
Q3) Where no specific document exists for a transaction the operation is classified as:
A) Miscellaneous.
B) Insignificant.
C) Immaterial.
D) None of these.
Answer: A
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Chapter 4: Accounting Principles and End-Of-Period Adjustments
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Sample Questions
Q1) Which of the following is an example of an adjusting entry?
A) The payment of wages which have been accrued
B) The collection of an accounts receivable
C) The return of defective inventory
D) The accrual of interest expense
Q2) Where there is modest inflation,accounting assumes that the purchasing power of the monetary unit is:
A) Stable.
B) Decreasing.
C) Increasing.
D) None of these.
Q3) A business has two bank accounts: one has a positive balance of 50 CU and the second has a negative balance of 70 CU.What should be reported in the balance sheet?
A) A net negative balance of 20 CU on the assets side.
B) A net negative balance of 20 CU on the liabilities side.
C) A balance of 70 CU on the assets side and a balance of 50 CU on the liabilities side.
D) A balance of 50 CU on the assets side and a balance of 70 CU on the liabilities side.
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Page 6
Chapter 5: Regulation of Accounting and Financial Reporting
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Q1) The profit and loss account in the UK is generally called the ____ in the USA.
A) Revenue and expense account
B) Result account
C) Income generation account
D) None of these.
Q2) For the statement of financial position/balance sheet,the 'single-step' format provides more detail than the 'multiple-step' format.
A)True
B)False
Q3) The different formats that exist for the presentation of the statement of financial position/balance sheet do not affect its generic content.
A)True
B)False
Q4) The international standards now applicable are called IAS Standards or IFRS Standards.
A)True
B)False
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Chapter 6: Revenue Recognition Issues
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Q1) Which of the following methods is not used to determine the percentage of completion of a transaction?
A) Cost allocation method.
B) Quantity of services performed to date as a percentage of total services to be performed.
C) Actual measurement of work performed.
D) The proportion that costs incurred to date represented as a percentage of the re-estimated total cost of the transaction at completion.
Q2) Deferred tax is created when income tax expense is based on:
A) Taxable income
B) Pre-tax income
C) Financial income
D) Operating income
Q3) The basic principle of deferred taxation is that the difference is not expected to be reversed in future periods.
A)True
B)False
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Chapter 7: Tangible Fixed Assets
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Q1) Which of the following equations is correct?
A) Gross value at the beginning of the period + Acquisitions of the period - Disposals of the period = Gross value at the end of the period
B) Gross value at the beginning of the period - Acquisitions of the period - Disposals of the period = Gross value at the end of the period
C) Gross value at the beginning of the period + Acquisitions of the period + Disposals of the period = Gross value at the end of the period
D) Gross value at the beginning of the period - Acquisitions of the period + Disposals of the period = Gross value at the end of the period
Q2) Under what circumstances are costs incurred after the acquisition of an asset (such as additions,improvements,or replacements),added to the asset's depreciable amount?
A) They provide future service potential.
B) They extend the useful life of the asset.
C) They increase either the quantity or quality of service rendered by the asset.
D) All of these
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9
Chapter 8: Intangible Assets
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Q1) For each type of intangible assets,local GAAPs indicate precisely the duration of amortization.
A)True
B)False
Q2) Pharmaceutical companies are known to have a high R&D intensity.
A)True
B)False
Q3) Intangible assets are usually considered to have no physical substance and to be linked to legal rights.
A)True
B)False
Q4) The R&D intensity can also be computed as R&D expenses/operating expenses.
A)True
B)False
Q5) There is no relationship between the company's R&D investment and its market value.
A)True B)False
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Chapter 9: Inventories
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Q1) Any cost that does not flow to the income statement by way of a cascade of inventory accounts is recognized in the period incurred and is thus called a 'product cost'.
A)True
B)False
Q2) Which of the following types of inventories is not common in a manufacturing activity?
A) Raw materials
B) Merchandise
C) Semi finished goods
D) Work in progress
Q3) To a manager whose responsibility it is to allocate resources in order to manage a product and customer portfolios,the most important element is the value of:
A) The cost of goods sold.
B) The inventory.
C) The provision for depreciation of inventories.
D) None of these.
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11
Chapter 10: Financial Instruments in the Statement of
Financial Position and Fair Value Accounting
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Q1) Which of the following items is not a type of accounts receivable reported in the financial statements?
A) Doubtful accounts receivable
B) Disputed accounts receivable
C) Uncollectible accounts receivable
D) Overdue accounts receivable
Q2) Generally,the uncollectibility risk is evaluated and an allowance for uncollectibles is recorded as a provision.What is this method called?
A) Provision method
B) Allowance method
C) Prudent method
D) None of the above
Q3) Which of the following statements is false?
A) Uncollectible accounts must be written off.
B) A claim is considered as uncollectible when the debtor is not solvent.
C) Uncollectible accounts are not reported in the financial statements.
D) The write off of the uncollectible accounts generates a bad debt expense in the income statement.
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Chapter 11: Shareholders Equity
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Q1) Which of the following types of capital is defined as: 'The fraction of the subscribed capital that the corporation's board decided to collect from the investors'?
A) Authorized capital
B) Issued capital
C) Outstanding capital
D) Called-up capital
Q2) Which of the following equations is correct?
A) Capital = Par value/Number of shares
B) Capital = Number of shares/Par value
C) Capital = Number of shares × Par value
D) Capital = Number of shares - Par value
Q3) How is the debt/equity ratio calculated?
A) Shareholders' equity/Total assets
B) Shareholders' equity/Long-term debts
C) Total assets/Shareholders' equity
D) Long-term debts/Shareholders' equity
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Chapter 12: Liabilities and Provisions
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Sample Questions
Q1) If the assumed discount rate is 6% and the stated rate is 8%,the bonds will sell:
A) At par value.
B) At a discount.
C) At a premium.
D) None of these
Q2) What is included in post-employment benefits?
A) Pensions.
B) Post-employment life insurance.
C) Post-employment medical care.
D) All of these
Q3) IAS 17 recommends that finance leases be recognized as assets and liabilities on the statement of financial position/balance sheet.Such recording of finance leases is often known as the ____ of the leased asset.
A) Recognition
B) Incorporation
C) Capitalization
D) Reservation
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Chapter 13: Business Combinations
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Q1) What is a contractual arrangement called where two or more parties undertake an economic activity that is subject to joint control?
A) Subsidiary
B) Parent company
C) Associate
D) Joint venture
Q2) Given the above data: What is the number of shares to issue in the merger?
A) 4 000
B) 3 000
C) 2 000
D) 1 000
Q3) According to IFRS 10 (new standard),control exists if,and only if,the investor has A) Power over the investee
B) Exposure,or rights,to variable returns from its involvement with the investee
C) The ability to use its power over the investee to affect the amount of the investor's return
D) All of these
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Chapter 14: Income Statement Analysis
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Q1) Eudora Inc.is a pharmaceutical laboratory involved in advanced biotechnology research,manufacturing and sales and distribution of advanced medications in growing markets.At the beginning of X1 shareholders' equity was 1,000 CU.From period X1 to period X2,production increased from 2,000 CU to 2,400 CU.Simultaneously,consumptions from third parties increased from 1,500 to 1,860.The philosophy of management is that value-added should be partitioned as follows: 50% to employees in the form of remunerations in the larger sense,5% go to paying for interest expenses,15% go to the state in the form of taxes paid,5% are set aside as a provision for price reductions for patients in developing countries who cannot afford buying the medication at the list price,and 25% go to shareholders (but no dividends are paid in either year),.What was the return on equity during X1 and during X2.
A) X1 ROE = 12.5%;X2 ROE = 13.5%.
B) X1 ROE = 25%;X2 ROE = 25%.
C) X1 ROE = 25%;X2 ROE = 24%.
D) X1 ROE = 12.5%;X2 ROE = 12%
Q2) Trend analysis and common-size analysis can give sufficient or final answers to the decision maker.
A)True
B)False
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Chapter 15: Balance Sheet Analysis
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Sample Questions
Q1) If a firm faces short-term financing difficulties (as happened in the liquidity crisis of 2008-2009)and forecasts a reduction of its sales revenue due to global recession,which of the four possible course of action described below would it be best advised to implement:
A) Liquidate as much of its inventory as possible and sell its receivables so as to pay as much as possible of its short-term debt.
B) Use its cash on hand to first settle its short-term debt,negotiate longer credit terms with suppliers,and analyze receivables to stop selling to slow-paying customers.
C) Issue long-term bonds and invest in more capacity,more R&D,more product launches and higher levels of inventory to better serve customers.
D) Reduce simultaneously and within market constraints its inventory level,credit terms to customers,and cash in a reasoned way (leading to reduced activity and thus reduced payables)and weed receivables from slow payers.
Q2) A positive working capital need is typical of a firm operating in the distribution sector.
A)True B)False
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Chapter 16: Statement of Cash Flows Construction
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Q1) For which of the following reason(s)do entities need cash,however different their principal revenue-producing activities might be?
A) To conduct their operations.
B) To pay their obligations.
C) To provide returns to their investors.
D) All of these
Q2) To which type of activities in the statement of cash flows does the following definition correspond: 'these cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows'?
A) Operating activities
B) Investing activities
C) Financing activities
D) Managing activities
Q3) Past cash flows aid users of the financial statements in:
A) Predicting future cash flows.
B) Evaluating the way management generates and uses cash.
C) Determining a company's ability to pay interest and dividends and to pay debts when they are due.
D) All of these.
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Chapter 17: Statement of Cash Flows Analysis and Earnings
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Q1) Which of the following action is unlikely to help a business entity increase its cash flow from operations?
A) Push sales at year-end by invoicing before shipment.
B) Grow sales by courting marginal customers not serviced by any other firm.
C) Structure credit terms for customers on the basis of the level of risk of default they represent.
D) Reduce the diversity of suppliers to increase the entity's negotiation power with the remaining selected suppliers.
Q2) A retailer is paid cash by its customers but pays its suppliers very regularly but no sooner than 60 days of receipt of their invoice.Monthly sales hold steady at 100 units at 5 CU each.The cost of the merchandise is 3 CU per unit.The firm has been in existence for 100 years.By how much will the amount of cash received from customers in January X1 differ from the amount of sales revenue recognized in that month? The retailer closes it books on 30 June each year.
A) 500 CU
B) 300 CU
C) 200 CU
D) No difference
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Chapter 18: Ratio Analysis, financial Analysis and Beyond
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Q1) Firm A and firm B are in the same risk class.Firm A has return on sales of 3% and an asset turnover of 4.Firm B generates 2 CU of profit per 100 CU of sales revenue and requires 25 CU of assets in order to support 100 CU of sales.In order for firm B to be seen as generating a better return on assets than firm A:
A) Firm A must increase its asset turnover to 6.67.
B) Firm A must increase its sales revenue to 110 CU.
C) Firm B must reduce the assets required to support its sales to 16.67 CU.
D) Firm B must increase its sales revenue to 110 CU.
Q2) Economic Value Added (EVA)is defined as follows
A) Change,year on year,in the net present value of after-tax operating profit adjusted for the interest expense tax shield.
B) Residual Income adjusted for the after-tax effects of accounting adjustments and of the interest expense tax shield.
C) Net operating after-tax profit minus a cost of long-term financing adjusted for after-tax effects of accounting adjustments.
D) Net present value of future operating earnings adjusted for R&D,training and commercial expenses and after-tax effects of accounting adjustments.
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