Accounting and Reporting for Corporations
Final Test Solutions
Course Introduction
This course provides a comprehensive exploration of accounting principles and financial reporting practices specific to corporations. Students will learn how to prepare, analyze, and interpret financial statements in accordance with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Topics include accounting for assets, liabilities, equity, revenue recognition, income measurement, and the complexities of corporate transactions such as mergers, acquisitions, and consolidations. The course also addresses disclosure requirements, the ethical responsibilities of accountants, and the impact of regulatory frameworks. By the end, students will gain the skills necessary to critically assess corporate financial reports and support sound business decision-making.
Recommended Textbook
Company Accounting Australia New Zealand 5th Edition by Peter Jubb
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26 Chapters
653 Verified Questions
653 Flashcards
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Page 2
Chapter 1: Companies and Corporate Regulation
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Sample Questions
Q1) What type of entity is company I?
Small proprietary \(\quad\)\(\quad\)Large proprietary \(\quad\)\(\quad\)\(\quad\)Disclosing entity
A)Yes\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) No \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)Yes
B)Yes \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)No \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)Maybe
C)No \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) Yes \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)Yes
D)No \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) Yes \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)Maybe
Answer: D
Q2) IFRS standards adopted for use in Australia cover all Australian accounting standard topics.
A)True
B)False
Answer: False
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Chapter 2: Objectives of Company Reporting, Conceptual
Elements and Terminology
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Sample Questions
Q1) Which entities covered by the Corporations Act must apply the provisions in all AASB accounting standards when preparing the annual financial reports (assuming materiality)?
A)only reporting entities
B)only disclosing entities
C)only public companies that are reporting entities
D)only disclosing entities and reporting entities
Answer: D
Q2) The Corporations Act itself gives little guidance about how to give a true and fair view of financial statements.
A)True
B)False
Answer: True
Q3) In the Framework, recognition means including the financial effect of an item:
A)in one of the financial statements
B)in the notes only
C)in one of the financial statements or in the notes
D)only in either the income statement or the balance sheet
Answer: A
Page 4
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Chapter 3: Forming a Company and Issuing Shares
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Q1) Zebon Ltd has three distinct operations: mining, transport and communications.The company has a class of share in which the holders of those shares are entitled to a distribution from profits only out of the operations of Zebon's mining activities.This type of share is best described as a:
A)Targeted share
B)Founder (Deferred) share
C)Ordinary share
D)Preference share
Answer: A
Q2) A prospectus will always guarantee a minimum return on investment for the prospective shareholder.
A)True
B)False Answer: False
Q3) An undersubscribed share issue must always be abandoned and the application monies returned.
A)True
B)False Answer: False
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Page 5
Chapter 4: Profits, Reserve and Distributions to Owners
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Sample Questions
Q1) Capitalisation of profits results in:
A)no change to retained profits
B)a decrease in assets and an increase in issued capital
C)increasing total liabilities
D)no change to total shareholder's equity
Q2) In which of the following ways can a 'reserve' be established in the balance sheet?
I.\(\quad\) By a decision of management to transfer an amount from retained profits
II.\(\quad\) By agreement in a debt contract
III.\(\quad\)By the provision of an accounting standard
A)I only
B)I and III only
C)II and III only
D)I, II and III
Q3) Under AASB 101 fire damage expense must be recorded as a loss and not as an ordinary expense.
A)True
B)False
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Chapter 5: Reorganisation of Share Capital
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Sample Questions
Q1) Lehman Ltd classifies these preference shares as equity.The penalty payment will be recognised in Lehman's financial statements as:
A)in the profit or loss statement as an expense of $2 500
B)in the profit or loss statement as an expense of $5 000
C)in the changes in equity statement as a reduction in retained profits of $2 500
D)in the changes in equity statement as a reduction in retained profit of $5 000
Q2) A consolidation of shares results in an increase in the amount of paid-up share capital, but not the amount of issued share capital.
A)True
B)False
Q3) On 31 December the directors of Waugh Ltd decided that its ordinary shares should be consolidated so that the share capital would comprise 2 500 000 ordinary shares.After the consolidation, the amount outstanding (uncalled) on each share will be:
A)$5.00
B)$12.00
C)$20.00
D)$15
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Chapter 6: Debt Securities
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Questions
Q1) The market value of a debenture is the amount at which it would be exchanged in an active, liquid market (its fair value).When a company raises funds using debentures and the current market interest rate is different to the rate in the debenture deed at issue date, that company normally will receive the:
A)face amount of the debenture, pay the market rate of interest over the debenture's term and pay the market value of the debenture upon maturity
B)market value of the debenture, pay the market rate of interest over the debenture's term and pay the face amount of the debenture upon maturity
C)face amount of the debenture, pay the rate of interest in the deed over the debenture's term and pay the market value of the debenture upon maturity
D)market value of the debenture, pay the rate of interest in the deed over the debenture's term and pay the face amount of the debenture upon maturity
Q2) Redemption of debentures at a discount, rather than a premium is possible condition of a debt agreement.
A)True
B)False
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Page 8
Chapter 7: Foreign Currency Transactions and an Introduction to Hedging
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Sample Questions
Q1) In Australia, the presentation currency adopted must be the Australian currency. A)True
B)False
Q2) For Alpha Ltd, it presentation currency is:
A)A$
B)¥
C)UK£
D)US$
Q3) For Alpha Ltd its functional currency is:
A)A$
B)¥
C)UK£
D)US$
Q4) What FC exchange difference, if any, will be included in Zeppelin's profit or loss statement for the year ended 31 December 20X4 and at what amount will the FC account payable be recognised in the balance sheet?
A)FC account payable = 1,080,000; $40,000 FC exchange difference revenue
B)FC account payable = 1,080,000; $80,000 FC exchange difference revenue
C)FC account payable = 1,080,000; $40,000 FC exchange difference expense
D)FC account payable = 1,080,000; $80,000 FC exchange difference expense
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Chapter 8: Advanced Asset and Liability Issues
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Sample Questions
Q1) If Edwards Ltd applies the cost model to the assets, at what amount will asset 1 be reported in the balance sheet?
A)$450,000
B)$500,000
C)$600,000
D)Nil
Q2) Under certain circumstances, a choice exists between using the primary method or the exception method when revaluing property, plant and equipment under AASB 116.All other things being equal, which statement is incorrect?
A)Both methods provide the same information just after revaluation.
B)The exception method is more time consuming than the primary method.
C)The primary method results in the accumulated depreciation account equalling zero just after revaluation.
D)The methods do not affect the asset's carrying amount.
Q3) Impairment requirements of AASB 136 apply to non-current assets recognised using the revaluation model under AASB 116.
A)True
B)False
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Chapter 9: Income Tax
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Sample Questions
Q1) Under AASB 112 the following is true:
A)taxable temporary difference produce deferred tax assets and deductible temporary differences produce deferred tax liabilities
B)taxable temporary difference produce deferred tax liabilities and deductible temporary differences produce deferred tax assets
C)carry forward tax losses produce deferred tax liabilities
D)income tax is treated as an expropriation of profits not as an expense.
Q2) For the DRM700, the difference in depreciation for tax and accounting purposes for the year ending 30/06/20X2 results in:
A)a taxable temporary difference of $600 000 and a deferred tax liability of $180 000
B)a deductible temporary difference of $600 000 a deferred tax liability of $180 000
C)a deferred tax expense and a deferred tax liability of $37 500
D)a deferred tax revenue and deferred tax asset of $180 000
Q3) Temporary taxable difference result in the recognition of deferred tax assets.
A)True
B)False
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Chapter 10: Reports and Disclosures I: Overview
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Sample Questions
Q1) In deciding whether an item is material, a young accountant determines that an item is less than 5% of the appropriate base amount.This means that the item:
A)is material
B)is not material
C)is in the no presumption range
D)could be material depending on qualitative factors
Q2) Under the Corporations Act, various types of financial reports are possible:
I\(\quad\)annual financial report
II\(\quad\)concise annual financial report
III\(\quad\)half year financial report
Which of the following statements best describes the obligations to present financial reports of a disclosing entity:
A)neither I, II nor III is required if it is also a proprietary company
B)it must prepare both I and III and can prepare II
C)it must send both I and II to shareholders
D)need only prepare I
Q3) Disclosing entities must prepare both annual and half year financial reports.
A)True
B)False
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Page 12
Chapter 11: Reports and Disclosures Ii: the Financial Statements
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Sample Questions
Q1) AASB 101 expressly prohibits the use of 'fixed assets' instead of non-current assets.
A)True
B)False
Q2) AASB 101 does not allow the use of alternative names for the financial statements.
A)True
B)False
Q3) Under AASB 101, the measure of profit presented is found by:
A)subtracting from operating income (revenues and gains) recognised the amount of operating expenses recognised
B)income (revenues and gains) recognised less expenses recognised
C)income (revenues and gains) recognised less expenses recognised, excluding extraordinary items
D)income (revenues and gains) recognised less expenses recognised, but excluding those recognised as other comprehensive profit under the requirements of an accounting standard
Q4) A cash flow statement is only required for listed entities.
A)True
B)False
13
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Chapter 12: Receivership and Voluntary Administration
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Sample Questions
Q1) Which of the following appointments normally has power over the company's operations?
I.\(\quad\)Receiver
II.\(\quad\)Receiver and Manager
III.\(\quad\)Liquidator
A)I only
B)II only
C)II and III only
D)I, II and III
Q2) There is no disclosure of the fact that a company is under external administration. A)True
B)False
Q3) The appointment of a receiver invariably results in the dissolution of the company. A)True
B)False
Q4) A company's auditor can act as a receiver for the companies property. A)True
B)False
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Chapter 13: Liquidations
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Sample Questions
Q1) All shares rank equally for return of capital except where for a particular class of shares a different ranking is expressly provided in the company's constitution or the terms of issue.
A)True
B)False
Q2) What is the dividend per dollar owed, payable to employees owed annual leave, if the total proceeds available for distribution is $250 000 and the security realises sufficient cash to fully discharge the secured debt? (The $250 000 includes the amount paid to secured creditors.)
A)$1.00 (fully paid)
B)$0.86
C)$0.45
D)$0.50
Q3) A liquidator has priority for amounts that relate to:
A)costs incurred in the liquidation and for the liquidators fees
B)costs incurred in the liquidation only
C)the liquidators fees
D)costs incurred in the liquidation and for the liquidators fees.
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Chapter 14: External Administration Reports and Accounts
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Q1) With respect to the report as to affairs, which statement is correct? The total carrying amount of assets is:
A)likely to be higher than the total of their estimated realisable values
B)likely to be lower than the total of their estimated realisable values
C)unable to be determined and must be estimated with reference to a comparable company
D)likely to be equal to the total of their estimated realisable values
Q2) During the appointment period, a liquidator must prepare accounts for each:
A)one-month period
B)two-month period
C)six-month period
D)eight-month period
Q3) In an external administration, the net realisable value of the assets is the same as the net fair value used in determining recoverable amount under AASB 136.
A)True
B)False
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16
Chapter 15: Investments in New Assets; Introduction to
Business Combinations and Associates
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Q1) In a business combination, the only goodwill components suitable for recognition in financial statements are component 4, synergies, and component 5, over-valuation of the consideration.
A)True
B)False
Q2) On 1 January 20X0, John Ltd acquired 100 % of the share capital of Paul Ltd for $400 000 cash.At that date, the equity section of Paul Ltd's balance sheet was as follows:
Share capital
Retained profits \(\quad \) \(\quad \)\(\quad \)100000
Asset revaluation reserve
Assuming all assets and liabilities were recorded at their fair values what was the difference on acquisition?
A)$200 000 goodwill
B)$100 000 bargain purchase
C)$100 000 goodwill
D)$200 000 bargain purchase
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Chapter 16: The Corporate Group
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Q1) An investor who holds joint control over an entity has the option of consolidation accounting under AASB 127 or one of the accounting techniques allowed under the joint ventures accounting standard.
A)True
B)False
Q2) Temporary differences that arise on consolidation always result in the recognition of either a deferred tax asset or a deferred tax liability.
A)True
B)False
Q3) Which of the following statements is not correct?
A)Control is the power to govern the operating policies of an entity so as to obtain benefits from its activities (AASB 3)
B)Control that is joint control does not satisfy the definition of control under AASB accounting standards in respect of group formation
C)It is possible to control another company by means of economic pressure alone
D)Control could be obtained over a public listed company by obtaining 20 per cent of its voting shares.
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18
Chapter 17: Acquisition Method Introduction and Substitution
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Q1) With regard to the patent, which is the correct consolidation adjustment entry at control date?
A)Dr patent $30 000; credit asset revaluation reserve
B)Dr patent $30 000; credit fair value reserve
C)No adjustment entry required.
D)Dr patent $30 000; credit consolidated profit or loss
Q2) With regard to property, the correct consolidation data adjustment entry would be:
A)Dr property $30 000; Credit asset revaluation reserve.
B)Dr property $30 000; Credit fair value reserve.
C)No entry required.
D)None of the above.
Q3) With regard to inventory, which is the correct consolidation adjustment entry at control date?
A)Dr inventory expense $10 000; credit inventory
B)Dr inventory expense $10 000; credit fair value reserve
C)Dr fair value reserve $10 000; credit inventory
D)No entry required
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Chapter 18: Acquisition Method Application After Control
Date
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Q1) Subsidiary has internally generated an intangible asset that it does not recognise in its own account balances and financial statements.Parent assesses the value of the intangible at $500 000.The correct consolidation data adjustment for the intangible is:
Dr.Intangible \(\quad\)\(\quad\)\(\quad\)\(\quad\)$500 000
Cr.Asset revaluation reserve\(\quad\)\(\quad\)\(\quad\) $500 000
A)True
B)False
Q2) The substitution elimination entry may stay unchanged for several or more years after control date.
A)True
B)False
Q3) Subsidiary has property recorded at $60 000 using the cost method.Parent assesses the fair value of the property at $130 000.Group policy is to use the cost method.The correct consolidation data adjustment for the property is:
Dr.Property \(\quad\)\(\quad\)\(\quad\)$70 000
Cr.Asset revaluation reserve \(\quad\)\(\quad\)$70 000
A)True
B)False
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Chapter 19: Intra-Group Transactions
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Q1) Intra-group transactions on inventory always give rise to a deferred tax asset because CA>group CA.
A)True
B)False
Q2) Subsidiary buys inventory from parent at a transfer price of $150 000.The profit margin included in this was $50 000. The group will need to reduce its cost of sales by $100 000 in total.
A)True
B)False
Q3) The following is the only consolidation elimination entry required for an intra-group loan made and repaid during the reporting period:
Dr Loan payable
Cr Loan receivable
A)True
B)False
Q4) AASB 112 specifically exempts long-lived assets from giving rise to tax-effect assets and liabilities.
A)True B)False
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Chapter 20: Direct Non-Controlling Interest
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Q1) For the year ended 31 December 20X1, B Ltd reported a profit of $1 000 000; and B Ltd's 90-per-cent-owned subsidiary, C Ltd, reported a profit of $500 000.The only intra-group transaction during the year was a sale of inventory from C Ltd to B Ltd at a profit of $100 000.All of this inventory is unsold at 31 December 20X1.What is the formula to correctly calculate the NCI share of C Ltd's profit for this year?
A)$500 000 x 10%
B)$400 000 x 90%
C)$400 000 x 10%
D)$500 000 x 90%
Q2) Company A owns 60% and controls Company B, which pays a dividend of $1 million of which Company A receives $600 000.Because intra-group transactions are eliminated in full, the whole $1 million dividend is eliminated from consolidated amounts of dividend revenue.
A)True
B)False
Q3) Before 2008 the full goodwill method was not allowed under IFRS.
A)True
B)False
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Chapter 21: Changes to Parent Investment in Subsidiaries
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Q1) AASB 127 contains rules dealing with the effect of post-control changes in ownership on the calculation of the amount of goodwill recognised and the impact on consolidated owners' equity (parent entity and non-controlling interest).
A)True
B)False
Q2) If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X1 acquisition?
A)$40 000
B)$60 000
C)$200 000
D)none
Q3) If the partial method of measuring goodwill is adopted, what was the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date?
A)$550 000
B)$1 000 000
C)$750 000
D)$200 000
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23
Chapter 22: Indirect Interest
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Q1) A Ltd acquires 60% of B Ltd in 20X5.B Ltd has held a 70% interest in C Ltd since 20X0.In 20X4 the B group recorded $20 000 of consolidation goodwill impairment expense in respect of the C Ltd acquisition.Which of the following statements is true?
A)$12 000 of the B group impairment expense effectively disappears in the A group consolidation
B)The A group will recognise $20 000 of impairment expense
C)NCI of B group will not be assigned any impairment expense
D)None of the above is true
Q2) Under AASB 127 all consolidation differences and related costs must be assigned to the ultimate parent in the partial method.
A)True
B)False
Q3) What is the ultimate parent shareholders' direct interest in Karatha Ltd?
A)0
B)36%
C)42%
D)60%
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24
Chapter 23: Translation of Foreign Currency Statements
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Q1) The nature and purpose of the foreign currency translation reserve are both fully explained in AASB 121.
A)True
B)False
Q2) Which of the following is not given in the text as a reasons for allocating FCT reserve proportionately between parent entity owners and non-controlling interest (NCI):
A)translation involves a data adjustment preceding the consolidation process that involves the owners equity of the foreign operation, and should therefore be allocated to both MI and parent entity
B)to do so is consistent with the concept of control underlying the consolidation process.
C)it is more neutral and consistent with the entity view of the consolidation process
D)that the analogy with consolidation difference is not persuasive
Q3) The presentation currency for consolidated financial statements must be the same as the presentation currency for the parent entity's financial statements.
A)True
B)False
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Chapter 24: Consolidated Cash Flow Statements
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Q1) If an entity provides a consolidated cash flow statement it does not have to provide an individual cash flow statement.
A)True B)False
Q2) Information must be presented in relation to a consolidated cash flow statement that is not presented in relation to single-company cash flow statement.
A)True B)False
Q3) Which of the following most accurately reflects the position in relation to including liabilities as cash and cash equivalents?
A)they are only included if they are monetary liabilities
B)the can only be included if they are integral to the entity's cash management practices
C)they can only be included if they are denominated in the entity's presentation currency
D)they cannot be included under any circumstances
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26
Chapter 25: Equity Accounting Expanded and Joint Ventures
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Q1) A Jointly Controlled Entity could be structured as a partnership.
A)True
B)False
Q2) Note Ltd and Score Ltd are associates of Sound Ltd.Sound Ltd owns 20% of Note Ltd's issued capital and 30% of Score Ltd's capital.During the current financial year, Note Ltd sold inventory to Score Ltd at a profit to Note Ltd of $100 000.All inventory is on hand at the end of the current year.Note Ltd reported a profit of $250 000 for the current year.What is Sound Ltd's share of Note Ltd's current period profit?
A)$44 000
B)$30 000
C)$70 000
D)$270 000
Q3) When the equity method is discontinued due to there no longer being significant influence, the investment carrying amount becomes the initial 'cost' recognition for whatever method takes its place.
A)True
B)False
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Page 27
Chapter 26: Segment Reporting
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Q1) Under AASB 8 a segment can be classified as both:
A)II and IV
B)II and V
C)I and IV
D)I and V
Q2) Under AASB 8 information must always be included in an entity's financial report about its reportable operating segments.
A)True
B)False
Q3) Under AASB 8 segment profit is the difference between:
A)revenues from ordinary activities and expenses from ordinary activities
B)revenues from operating activities and expenses from ordinary activities
C)revenues and expenses internally reported to senior management
D)revenues for the segment that corresponds to those reported in the comprehensive profit statement (same recognition and measurement rules applied)
Q4) Under AASB 8 different rules are adopted in determining segment revenue and segment expenses
A)True
B)False
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