Accounting Principles
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Course Introduction
Accounting Principles introduces students to the foundational concepts and practices essential in the field of accounting. This course covers the systematic recording, reporting, and analysis of financial transactions, emphasizing the use of Generally Accepted Accounting Principles (GAAP). Key topics include the accounting cycle, preparation and interpretation of financial statements, asset and liability valuation, revenue and expense recognition, and the impact of ethical standards on financial reporting. By the end of the course, students will have a comprehensive understanding of how accounting information is used in decision-making for businesses and organizations.
Recommended Textbook
Understanding Australian Accounting Standards 1st Edition by Janice Loftus
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Page 2
Chapter 1: Accounting Regulation and the Conceptual Framework
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Sample Questions
Q1) The Financial Reporting Council (FRC) has the power to do the following, except:
A) directing the AASB to develop a particular accounting standard.
B) appointing the members of the AASB.
C) determining broad strategic direction for the AASB.
D) monitoring the development of international accounting standards.
Answer: A
Q2) What is the constraint that limits the information provided by financial reporting?
A) Timeliness
B) Materiality
C) Comparability
D) Cost
Answer: D
Q3) The definition of equity as given in the Conceptual Framework shows that:
A) Equity = Assets - Expenses
B) Equity = Assets - Liabilities
C) Equity = Income - Expenses
D) Equity = Assets - Liabilities - Expenses
Answer: B
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Chapter 2: Application of Accounting Theory
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Sample Questions
Q1) An example of bonding costs is:
A) auditor's fees.
B) cost of implementing a management remuneration plan.
C) cost of preparing quarterly financial reports.
D) cost of setting up company's code of conducts.
Answer: C
Q2) Which of the following statements about asset substitution is incorrect?
A) Managers have incentives to use debts to invest in higher-risk assets.
B) When managers invest in higher-risk projects, lenders would share higher returns earned from the projects.
C) The problem of asset substitution can be reduced by having a debt covenant that restricts investment opportunities of the entity.
D) All of the options are correct.
Answer: B
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4
Chapter 3: Shareholders Equity: Share Capital and Reserves
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Sample Questions
Q1) In relation to an asset revaluation surplus, an entity
A) is not able to use this surplus for the payment of future dividends
B) is able to use this surplus for the payment of future dividends
C) is not able to transfer this surplus to any other reserve account
D) can transfer the surplus to current period profit or loss when the asset is disposed of
Answer: B
Q2) Which of the following statements is incorrect?
A) Each share in a company carries a right to share in the assets on the liquidation of the company
B) Each share in a company carries a right to share proportionately in all new share issues of a company
C) A share represents an ownership right in a company
D) Each share in a company carries a right to vote for directors of the company
Answer: B
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5
Chapter 4: Fair Value Measurement
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Q1) Which of the following is not a valuation technique prescribed by AASB 13?
A) the fair value approach
B) the income approach
C) the cost approach
D) the market approach
Q2) Non-performance risk refers to the risk that:
A) a market participant will not fulfil an obligation
B) the holder of the liability will not fulfil an obligation
C) the counterparty will not fill an obligation
D) the holder of a corresponding asset will not fulfil an obligation.
Q3) Unobservable inputs for the asset or liability are an example of:
A) a Level 1 input
B) a Level 2 input
C) a Level 3 input
D) a Level 4 input
Q4) When determining the fair value of an asset its fair value is based on its:
A) Current use
B) Proposed use
C) Highest and best use
D) Value in use
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Chapter 5: Revenue
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Sample Questions
Q1) Easter Pty Ltd operates a facility making chocolate Easter eggs. Easter has a policy that all unsold chocolate eggs can be returned for a full refund within 1 week of Easter Sunday. On 1 March 2014, Easter sold 500 pallets of packaged eggs at $100 per pallet. Historical data indicates that 20% of the stock will be returned for a refund. Within one month of Easter Sunday (by the end of April 2014) 10% of the eggs were retuned for refund. Using the expected sales approach, how much revenue would be recognised by Easter at the end of April 2014?
A) Nil
B) $40 000
C) $45 000
D) $50 000
Q2) Which of the following are excluded from the scope of AASB 118?
I the initial recognition of agricultural produce
II insurance contracts within the scope of AASB 4
III the extraction of mineral ores
IV lease agreements
A) I, II only
B) II, III and IV only
C) I, III and IV only
D) I, II, III and IV
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Chapter 6: Provisions, Contingent Liabilities and Contingent Assets
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Q1) At balance sheet date, Raschella Limited was awaiting the final details of a court case for damages awarded in its favour. The amount and possible receipt of damages is unknown and will not be decided until the court sits again in several months time. How is this event dealt with in the preparation of the financial statements?
A) do not recognise or disclose in the financial statements as the possibility of receiving damages is remote;
B) recognise as an asset in the financial statements as the receipt of damages is probable;
C) disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control;
D) recognise as a deferred asset in the statement of financial position and re-classify as a non-current asset when the court decision is known.
Q2) The uncertainty that exists in relation to provisions is one of
A) timing
B) amount
C) timing and amount
D) timing or amount
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Page 8
Chapter 7: Income Taxes
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Sample Questions
Q1) D'Silva Limited has a product warranty liability amounting to $10 000. The product warranty costs are not tax deductible until paid out to customers. The company tax rate is 30%. The company has:
A) a deductible temporary difference of $10 000
B) an taxable temporary difference of $10 000
C) a tax base of $10 000
D) a future deductible amount of $0.
Q2) A deductible temporary difference is expected to lead to the payment of:
A) more tax in the future and gives rise to a deferred tax asset
B) less tax in the future and gives rise to a deferred tax asset
C) more tax in the future and gives rise to a deferred tax liability
D) less tax in the future and gives rise to a deferred tax liability.
Q3) Under AASB 112 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:
A) applied at the beginning of the reporting period
B) at the end of the reporting period
C) at the rates that prevail at the reporting date
D) are expected to apply when the asset is realised or the liability is settled.
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Page 9
Chapter 8: Financial Instruments
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Q1) Company A issued convertible notes 3 years ago and accounted for them as a compound financial instrument. Complete the following:
At the end of the three year period the portion of the XXX component that relates to the notes which have been converted XXX.
A) equity, is transferred to profit & loss
B) liability, remains as a liability
C) liability, is transferred to equity
D) liability, is transferred to profit & loss
Q2) When first issued, AASB 139 was:
A) More rule-based than other AASB standards
B) Less rule-based than other AASB standards
C) Wider in scope that other AASB standards
D) Narrower in scope that other AASB standards
Q3) When accounting for a cash flow hedge, AASB 139 Financial Instruments: Recognition and Measurement, requires that hedge ineffectiveness is:
A) recorded in profit or loss;
B) separately recorded in equity;
C) recorded separately as a financial liability;
D) capitalised as a deferred asset.
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Page 10
Chapter 9: Share-Based Payments
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Q1) The cumulative remuneration expense to be recognised by Fantasy as at 30 June 2015 is:
A) $7800
B) $17 800
C) $35 600
D) $124 600
Q2) A share-based payment transaction in which the entity receives goods or services as consideration for equity instruments of the entity is classified in AASB 2 Share-based Payment as
A) an equity-settled share-based payment transaction
B) a cash-settled share-based payment transaction
C) a liability-settled share-based payment transaction
D) an "other" share-based payment transaction
Q3) The formula to calculate the remuneration expense for the year ended 30 June 2016 is:
A) 7800 x ($8-$7)
B) 7800 x $8
C) (7800 + 10 000) x ($8-$5)
D) (7800 + 10 000) x ($8-$7)
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Page 11
Chapter 10: Translation of the Financial Statements of Foreign Entities
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Sample Questions
Q1) The general rule for translating liabilities denominated in a foreign currency into the functional currency is to:
A) translate all liabilities using the current rate existing at end of reporting period; B) first classify the liabilities into current and non-current; C) first classify the liabilities as monetary or non-monetary; D) translate all liabilities using the rate current on entering into the transaction.
Q2) Aussie Ltd has an investment in Yankee Inc. The shares in Yankee were acquired on 15 August 20X4. Yankee uses the revaluation model to account for land & buildings. A building which was acquired by Yankee on 1 April 20X2 was revalued on 15 March 20X9. The exchange rate used to translate the building into the presentation currency at 30 June 20X9 is the rate that applied on:
A) 1 April 20X2
B) 15 August 20X4
C) 15 March 20X9
D) 30 June 20X9
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Page 12
Chapter 11: Employee Benefits
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Sample Questions
Q1) The key difference between defined benefit and defined contributions post-employment plans is that:
A) the employee bears the risk in a defined benefit plan, whereas the employer bears the risk in a defined contribution plan
B) the fund bears the risk in a defined benefit plan, whereas the employee bears the risk in a defined contribution plan
C) the employer bears the risk in a defined benefit plan, whereas the employee bears the risk in a defined contribution plan
D) the employer bears the risk in a defined benefit plan, whereas the fund bears the risk in a defined contribution plan
Q2) An entity is required to recognise a liability for short-term compensated absences that are:
A) accumulating and vesting
B) non-accumulating and vesting
C) non-accumulating and non-vesting
D) all of the above
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13
Chapter 12: Inventories
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Sample Questions
Q1) Which of the following is not recognised as an expense in accordance with AASB 102?
A) Cost of goods sold
B) Write-downs of inventories to net realisable value
C) Reversal of write downs to net realisable value
D) Inventory items used by an entity as components in self-constructed property, plant or equipment.
Q2) AASB 102 Inventories requires that when inventories are written down to net realisable value, they are written-down:
A) on a class-by-class basis;
B) on the basis of industry segment;
C) on an item-by-item basis;
D) according to geographical segment within the entity.
Q3) Under the periodic inventory approach the cost of goods sold during a period is determined as follows:
A) beginning inventory + net purchases - ending inventory;
B) beginning inventory - net purchases - ending inventory;
C) opening inventory + net purchases + closing inventory;
D) opening inventory - net purchases + closing inventory.
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Chapter 13: Property, Plant and Equipment
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Sample Questions
Q1) Revaluations under AASB 116 Property, Plant and Equipment apply to:
A) all assets on an individual basis
B) individual current assets only
C) individual non-current assets only
D) assets on a class-by-class basis.
Q2) The cost of an item of property, plant and equipment is only recognised if the cost of the item can be reliably measured and if:
A) it is not directly attributable to the asset;
B) it has been paid for in cash;
C) the item has been received by the acquirer;
D) it is probable that future economic benefits associated with the item will flow to the entity.
Q3) When an asset is sold the resulting gain or loss is:
A) reported in other comprehensive income, normally with separate disclosure of income and the carrying amount of the asset
B) reported in other comprehensive income, normally on a net basis
C) reported in current period profit or loss, normally with separate disclosure of income and the carrying amount of the asset
D) reported in current period profit or loss, normally on a net basis
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Page 15
Chapter 14: Leases
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Q1) Which of the following is NOT an example of a risk of ownership of an asset?
A) idle capacity
B) gains on the eventual sale of the asset
C) uninsured damage
D) technical obsolescence
Q2) Nelson Ltd manufactures specialised machinery for both sale and lease. On 1 July 2013, Nelson leased a machine to Poggi Ltd. The machine cost Nelson Ltd
$195 000 to manufacture, and its fair value at the inception of the lease was $212 515. The interest rate implicit in the lease is 10%, which is in line with current market rates. Under the terms of the lease, Poggi Ltd has guaranteed $25 000 of the asset's expected residual value of $37 000 at the end of the 5-year lease term. The debit to the sales revenue account in Nelson's books is:
A) $187 548
B) $195 000
C) $205 063
D) $212 515
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Chapter 15: Understanding Australian Accounting Standards
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Q1) For an asset to be classified as an identifiable intangible, AASB 138 Intangibles requires that it meet which of the following criteria?
I. It arises from a contractual or legal right.
II. Its fair value must be able to be reliably measured.
III. It is separable from the entity.
IV. Its cost must reliably measurable.
A) I or IV only
B) I or II only
C) II or III only
D) I or III only.
Q2) The characteristic that distinguishes the goodwill from other intangible assets is: A) identifiability
B) its nature as a monetary asset
C) that is has a physical embodiment
D) it can be separated from the entity and sold individually.
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Chapter 16: Impairment of Assets
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Sample Questions
Q1) Nguyen Limited estimated that it would receive future cash flows from the use of equipment:
End of Year 1 $10 000
End of Year 2 $50 000
End of Year 3 $20 000
The discount rate was determined as 8%. The 'value in use' of the equipment is:
A) $80 000
B) $73 600
C) $68 000
D) $63 500.
Q2) When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to recoverable amount. Recoverable amount is the higher of:
A) initial cost: and, fair value;
B) fair value less costs to sell: and, value in use;
C) original cost: and, net present value;
D) value in use: and, original cost.
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18
Chapter 17: Accounting for Mineral Resources
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Q1) Accounting for the acquisition of equipment to be used in the extraction of mineral resources is covered by:
A) AASB 6
B) AASB 108
C) AASB 116
D) AASB 138
Q2) Accounting policies for exploration and evaluation costs should be determined:
A) in accordance with AASB 6
B) in accordance with AASB 108
C) in accordance with AASB 106
D) in accordance with AASB 8
Q3) Which of the following methods is inconsistent with historical cost accounting?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method
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Chapter 18: Agriculture
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Q1) AASB 141 requires disclosure of which of the following relating to government grants?
A) the nature and extent of grants recognised, unfulfilled conditions attached to the grant and significant increases expected in the level of government grants.
B) the nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted
C) unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted
D) the nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and significant decreases expected in the level of government grants.
Q2) Which of the following meets the definition of agricultural produce?
A) Dairy cattle
B) Milk
C) Cheese
D) Yoghurt
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Chapter 19: Financial Statement Presentation
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Q1) Which of the following note disclosures are NOT required by AASB 101?
A) Sources of estimation uncertainty in relation to impairment of assets
B) Dividends declared after end of reporting period but before the financial statements are authorised for issue
C) the country of incorporation of the entity
D) the names and qualifications of all directors of the entity
Q2) Assets and liabilities, and income and expenses may be off-set if:
A) they are financial assets and liabilities;
B) they are in respect of borrowing and lending activities such as interest revenue and interest expense;
C) required or permitted by a standard;
D) there is no tax effect.
Q3) Items that are dissimilar in nature must be presented separately in financial statements unless:
A) they are immaterial;
B) they are financial items in which case they can be off-set;
C) the directors approve of an aggregation of the items;
D) the auditors approval to aggregate the items is obtained.
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Chapter 20: Statement of Cash Flows
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Q1) Warner Limited had the following cash flows during a reporting period:
Acquisition of subsidiary, net of cash flows $250 000
Dividends paid $65 000
Repayment of borrowings $90 000
Interest paid on borrowings $57 000
Proceeds from sale of plant $215 000
What is the amount of the cash flows in relation to financing activities of Warner Limited for the reporting period?
A) Net cash inflow $155 000
B) Net cash outflow $155 000
C) Net cash inflow $212 000
D) Net cash outflow $212 000
Q2) The basis of measurement used in the Statement of Cash Flows is:
A) accrual
B) cash and cash equivalents
C) net present value
D) market value.
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Chapter 21: Earnings Per Share
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Q1) The basic earnings per share at 30 June 2014 is:
A) $0.80
B) $0.96
C) $3.50
D) $4.00
Q2) The diluted earnings per share at 30 June 2014 is:
A) $0.80
B) $0.94
C) $1.24
D) $4.00
Q3) ABC Ltd has 21 000 ordinary shares on issue at 1 January 2015 which is the beginning of its reporting period. On 30 June 2015, it issued a further 2000 ordinary shares for cash. On 1 November 2015, ABC Ltd repurchased 600 shares at fair value in a market transaction.
The weighted average number of shares for use in the earnings per share calculation is:
A) 21 000 shares
B) 21 700 shares
C) 21 900 shares
D) 22 400 shares
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Page 23
Chapter 22: Operating Segments
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Q1) Bloomsville Ltd has a board of directors that consist of a Managing Director (MD) and non-executive directors. The MD has a regular monthly meeting with the Chief Operating Officer (COO) and the managers of Bloomsville's three business units. During the meeting, each manager would present an update of their unit's financial performance. The financial information is then reviewed by the MD and the COO to assess the performance of each business unit and to make decisions related to resource allocation. In this case, who is the CODM of Bloomsville?
A) The board of directors.
B) The MD and the COO.
C) The MD, the COO, and the three managers.
D) The MD only.
Q2) Additional segments must be identified as reportable segments until at least:
A) 75% of total entity revenue is included in reportable segments;
B) 75% of total entity assets are included in reportable segments;
C) 75% of total entity liabilities are included in reportable segments;
D) 75% of total entity equity is included in reportable segments.
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Chapter 23: Operating Segments
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Q1) The power to participate in the financial and operating policy decisions of an entity is known as:
A) control;
B) significant influence;
C) share ownership;
D) joint control.
Q2) Drew is one of the directors of Mellor Limited. In the current financial year, Mellor Limited paid $50 000 to Advice Agency, where Drew's brother works, for the consultancy services it provided. In addition, Mellor Limited also paid $2000 to Drew for a once-off consultancy he provided on a specific project. Which of the following statements describes the relationship between Drew, Mellor Limited, and Advice Agency?
A) Advice Agency is a related party to Mellor Limited.
B) Drew is not a related party to Mellor Limited.
C) The $50 000 consultancy fee is not a related party transaction.
D) The $2000 consultancy fee is not a related party transaction.
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25
Chapter 24: Business Combinations
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Q1) If shares are issued as part of the consideration paid, transactions costs such as brokerage fees may be incurred. According to AASB 3 Business Combinations the appropriate accounting treatment for such costs in the records of the acquirer is a debit to:
A) share capital
B) investments
C) cash
D) acquisition expenses.
Q2) Appendix B of AASB 3 requires disclosure of which of the following?
I details of contingent consideration
II the date of exchange
III carrying amounts of assets and liabilities in business combinations where shares are acquired
IV a qualitative description of the factors that make up goodwill
A) I, II and IV only
B) I, III and IV only
C) I, II and III only
D) I, II, III and IV
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26
Chapter 25: Consolidation: Principles and Accounting Requirements
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Q1) Company X acquired Company Y when the carrying value of Company Y's plant was $50 000. The fair value of the plant on acquisition date was $65 000. The company tax rate was 30%. How much is the amount of the business combination valuation reserve that must be recognised?
A) $65 000
B) $15 000
C) $10 500
D) $3 500.
Q2) When a dividend is paid by a wholly-owned subsidiary out of pre-acquisition equity, the parent entity recognises:
This is explained more in Chapter 26.
A) a reduction in the investment in the subsidiary
B) a decrease in share capital
C) an increase in dividend income
D) a decrease in dividend revenue.
Q3) In a consolidated group of entities, control over the subsidiaries in the group:
A) may not be shared control
B) can be shared with other parties
C) can be less than 100% control
D) can be less than 50% control.
Page 27
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Chapter 26: Consolidation: Intragroup Transactions
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Q1) A parent entity made an advance of $50 000 to its subsidiary. The parent charges interest of $3000 on this advance. The consolidation adjustment to eliminate the advance is:
A) DR Interest revenue \(\quad\$ 53000\)
CR Interest expense \(\quad\$ 53000\)
B) DR Interest expense \(\quad\) \(\$ 53,000\)
\(\quad\)CR Interest revenue \(\quad\)\(\$ 53,000\)
C) DR Advance to subsidiary \(\quad\)\(\$ 50,000\)
\(\quad\)CR Advance from parent \(\quad\) \(\$ 50,000\)
D)DR Advance from parent \(\quad\) \(\$ 50,000\)
\(\quad\)CR Advance to subsidiary \(\quad\)\(\$ 50,000\)
Q2) When a subsidiary declares a final dividend payable to a parent who has a 100% interest in the subsidiary, the parent recognises a dividend receivable and the subsidiary recognises a dividend payable. In addition to the elimination of these two items on consolidation, the following items must also be eliminated:
A) Dividend declared and Retained earnings.
B) Dividend declared and Dividend revenue.
C) Dividend revenue and Cash.
D) Dividend declared and Cash.
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Chapter 27: Consolidation: Non Controlling Interest
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Q1) Ownership interests in a subsidiary entity that do not belong to the parent entity are known as:
A) unowned interests
B) non-controlling interests
C) proprietary interests
D) pro rata ownership rights.
Q2) Lu Nan Limited acquired 70% of the share capital and reserves of Hui Limited for $36 000. Share capital was $18 000 and reserves amounted to $10 800. All assets and liabilities were recorded at fair value except plant which was recorded at $2500 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Lu Nan Limited in this business combination was:
A) $8 640
B) $9 165
C) $10 800
D) $14 615.
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Chapter 29: Joint Arrangements
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Q1) The particular relationship between parties that signifies the existence of a joint arrangement is:
A) significant influence by one party over the other party;
B) control over the operating policies of one party by another party;
C) shared influence by two parties over the activities of another party;
D) joint control by the parties over the activities of an operation.
Q2) Which of the following statements is not true in relation to joint control?
A) each party must have an equal interest for joint control to exist
B) joint control exists only where there is contractually agreed sharing of control
C) entities over which a party has joint control are accounted for in accordance with AASB 11 Joint Arrangements
D) joint control requires the unanimous consent of the parties sharing control
Q3) Which of the following will not form part of Abel Ltd's initial contribution entry?
A) Debit against the Cash in JO account of $1 500 000;
B) Debit against the Equipment in JO account of $500 000;
C) Credit against the Cash of $1 000 000;
D) Credit against the Gain on Equipment of $250 000.
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Chapter 30: Associates and Joint Ventures
Available Study Resources on Quizplus for this Chatper
26 Verified Questions
26 Flashcards
Source URL: https://quizplus.com/quiz/70198
Sample Questions
Q1) The adjustment required to the investment in associate account at 30 June 20X4 in relation to the above assets is:
A) $875
B) $1250
C) $3500
D) $5000
Q2) At 30 June 20X8 the equity accounted balance of the investment in Leo was:
A) NIL
B) $1500
C) $5000
D) $20 000
Q3) Assuming that Nero Ltd applies the equity method in its own books the entry to record the dividend receivable from Bianco Ltd at 31 December 20X9 would include:
A) a credit to the dividend revenue account.
B) a credit to the investment in associate account.
C) a debit to the dividend revenue account.
D) a debit to the investment in associate account.
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