Accounting Principles
Study Guide Questions
Course Introduction
Accounting Principles provides a foundational understanding of the concepts and practices that underpin the field of accounting. Students will explore the accounting cycle, including the recording, classification, and summarization of financial transactions, as well as how these processes culminate in the preparation of financial statements. Key topics covered include double-entry bookkeeping, accrual versus cash accounting, adjusting entries, and the application of generally accepted accounting principles (GAAP). The course also introduces ethical considerations and the role of accounting in business decision-making, preparing students for more advanced studies in accounting and finance.
Recommended Textbook
Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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Page 2
Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Q1) If there is a conflict between the provisions of the statements of accounting concepts and the requirements of the accounting standards:
A) the accounting standards prevail
B) the accounts must contain a note on the conflict
C) the AASB must rule on the conflict
D) the statements of accounting concepts prevail
Answer: A
Q2) Which statement concerning AASB Interpretations is not correct?
A) In 2006 the AASB decided to take over the role of the Urgent Issues Group
B) The AASB has set up an Interpretations Agenda Committee comprising the chairman and two other AASB members
C) Interpretations of IASB standards made by the IFRIC are not relevant in Australia
D) None of the above, i.e., all statements are correct
Answer: C
Q3) Explain and discuss the procedures currently operating in Australia for dealing with issues involving the development of AASB Interpretations.
Answer: Not Answer
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Page 3
Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) Management must ensure that the information contained in financial statements is presented in such a way that the statements can be understood only by:
A) the financially literate
B) accounting professionals
C) customers and employees
D) None of the above. Everyone should be able to understand financial statements
Answer: A
Q2) Which factor(s)is/are identified in SAC1 to assist in determining whether an entity has users dependent on general purpose financial reports?
A) Type of accounting system
B) Classes of issued shares
C) Separation of management and ownership
D) All of the above
Answer: C
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) Is taxation an expense under the Framework? Discuss.
Answer: Taxation is not considered an expense under the Framework. Expenses are typically defined as the costs incurred in the process of generating revenue, such as salaries, rent, utilities, and supplies. Taxation, on the other hand, is a mandatory payment to the government based on income, property, or goods and services. While taxation does reduce the amount of profit or income available to a business or individual, it is not considered an expense in the traditional accounting sense. Instead, taxation is typically accounted for separately on financial statements and is often categorized as a liability. Therefore, while taxation does impact the financial position of an entity, it is not classified as an expense under the Framework.
Q2) Explain and discuss three essential characteristics of an asset as defined by the Framework.
Answer: Not Answer
Q3) SAC3 arranges the qualitative characteristics in three levels:
A) fundamentals, presentation, display
B) fundamentals, enforcement, display
C) fundamentals, enhancing, constraints
D) assets, liabilities, owners' equity
Answer: C
Page 5
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) Under the Framework,the statement that is correct is:
A) Equity is defined independently of assets and liabilities
B) The recognition criteria of probability and measurability apply to equity
C) The measurement of equity depends on the basis of measurement employed for assets and liabilities
D) All of the statements are correct
Q2) For which of the following groups would all of the items be regarded as expenses under the Framework?
A) Dividends paid, cost of goods sold, electricity
B) Depreciation, payment of a creditor for expenses, salaries
C) Interest, rent, stock loss, amortisation
D) Inventory, light and power, cleaning
Q3) Using the Framework criteria,explain why the point of sale is generally selected as the point at which income is recognised.
Q4) Discuss the advantages and disadvantages associated with the use of the contract-price method of measuring liabilities.
Q5) Explain and discuss the assertion that current replacement cost provides a more relevant but less reliable measure of assets than historical cost.
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Chapter 5: The Choice of Accounting Methods
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Q1) Which party was not involved in initiating the move towards the harmonisation of Australian and International accounting standards?
A) The Australian Stock Exchange
B) 'Big business' represented by the Group of 100
C) The government
D) None of the above, i.e., all were engaged in initiating the move
Q2) Research suggests that post-Enron,Chief Financial Officers:
A) are reluctant to use accounting policy choices to manipulate earnings
B) prefer not to smooth earnings
C) are more likely to use accounting policy choices to smooth earnings
D) use volatile earnings to signal low risk prospects
Q3) Costs incurred to reduce opportunistic behaviour plus the costs of opportunistic behaviour that it is not economic to eliminate are known as:
A) political costs
B) bonding costs
C) agency costs
D) opportunity costs
Q4) Explain the meaning of creative accounting and discuss various factors that tend to limit its operation.
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Chapter 6: The Balance Sheet: an Overview
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Q1) Australian standard setters have adopted the view that:
A) there should be some flexibility in the format of financial statements
B) companies should use a fixed format when preparing financial statements
C) Schedule 5 provides an example of a flexible format for preparers of financial statements
D) the statement of financial position is merely a link between successive income statements
Q2) Additional line items to those disclosed in accordance with paras 68 and Aus68.1 of AASB 101 may be included on the face of the statement of financial position when disclosure of these items is assessed to be relevant to an understanding of the entity's financial position.This assessment is based on which of the following?
A) The nature and liquidity of assets
B) The function of the assets within the entity
C) The amounts, nature and timing of liabilities
D) All of the above
Q3) Identify and discuss the requirements concerning the classification of liabilities contained in AASB 101.
Q4) Identify and discuss the requirements concerning the classification of assets contained in AASB 101.
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Chapter 7: Accounting for Current Assets
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Q1) Under the LIFO method,in periods of rising prices:
A) profit cannot be manipulated by changes in purchasing patterns
B) profits could be increased by increasing unit purchases to a higher level than unit sales
C) profits could be increased by reducing unit purchases to a lower level than unit sales
D) profits could be decreased by reducing unit purchases to a lower level than unit sales
Q2) Inventory item Z8 has a cost price of $30 and a net realisable value $25,while item D3 has a cost price of $20,a net realisable value $25 and a replacement cost of $21.Under the lower of cost and net realisable value rule of inventory valuation,applied on an item-by-item basis,the value of inventory is:
A) $50
B) $51
C) $45
D) none of the above
Q3) Explain and discuss the criteria contained in AASB 101 for distinguishing between current and non-current assets.
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) Depreciable amount is defined in AASB 116 as:
A) the allocation of the cost of an asset, or other amount substituted for cost, over its useful life
B) the cost of an asset, or other amount substituted for cost, less accumulated depreciation
C) the cost of an asset, or other amount substituted for cost, less its residual value
D) none of the above
Q2) Assume that an asset was bought at a cost of $50 000.It is expected that the asset will have a useful life of 10 years with the straight-line depreciation method being used.At the beginning of year 5 the total useful life is re-estimated downward to 8 years.Under AASB 116 the annual depreciation expense for the final years of useful life is:
A) $7500
B) $5000
C) $4500
D) $3000
Q3) Explain and discuss how donated assets should be recorded in the accounts.
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Chapter 9: Accounting for Company Income Tax
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Q1) Income tax expense is:
A) the amount of tax paid to the government during the current reporting period
B) shown in the income statement
C) calculated by applying the company income tax rate to taxable income
D) the amount that must be paid to the government in respect of the current income tax year
Q2) Jordyn Ltd acquired land in 20X9 for a cash payment of $240 000.In 2011,Jordyn Ltd revalued that land to $340 000.If the company income tax rate is 30%,the following entry should be made:
A) Dr Land \(\quad \$ 30000\)
\(\mathrm { Cr }\) Deferred Tax Liability\(\quad\$ 30000\)
B) \(\begin{array} { l l l }
\text { Dr Revaluation Surplus } & \$ 30000 & \\
\text { Cr Deferred Tax Liability } & & \$ 30000
\end{array}\)
C) Dr Revaluation Reserve\(\quad\$ 30000\)
\(\mathrm { Cr }\) Deferred Tax Asset\(\quad\$ 30000\)
D) \(\text { No entry is required }\)
Q3) 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 Investments
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Q1) When deciding on the broad accounting treatment for investments in the shares of other companies that are held as non-current assets,the holdings are normally classified into which of the following broad groups?
A) Stock exchange listed holdings, family company holdings
B) Liquid holdings, non-liquid holdings
C) Small holdings, holdings that give significant influence, holdings that give control
D) Small holdings, large holdings
Q2) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
Q3) The accounting standard that applies to financial assets that consist of 'small holdings' of shares held as non-current assets is:
A) AASB 116 'Property, Plant and Equipment'
B) AASB 136 'Impairment of Assets'
C) AASB 139 'Financial Instruments: Recognition and Measurement'
D) All of the standards apply
Q4) Explain the nature of investment properties and summarise the accounting treatment proposed by AASB 140.
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Chapter 11: Accounting for Intangible Assets
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Q1) After 1 January 2005,the position that applies in Australia to the amortisation of goodwill is:
A) goodwill must be amortised systematically over the period during which the future economic benefits are expected to be consumed
B) goodwill is not required to be systematically amortised and is not subject to an impairment test
C) goodwill is not required to be systematically amortised but is subject to an impairment test
D) goodwill is to be amortised over a period not exceeding 20 years
Q2) When the sum of the fair values of the identifiable net assets acquired exceeds the cost of acquisition,the difference is known as:
A) negative goodwill
B) excess on acquisition
C) goodwill
D) both A and B
Q3) Explain and discuss the application of AASB 138 in its proposals to account for research and development expenditure.
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Chapter 12: Accounting for Leases
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Q1) A typical lease agreement will always set out all of the following except:
A) who is responsible for the payment of maintenance and repair costs, insurance and taxes
B) that the lease is non-cancellable by either party
C) the amount and timing of the lease (rental) payments
D) the period of the lease
Q2) Managers will often have strong incentives to favour operating leases over finance leases.This is because:
A) operating leases are recorded on the balance sheet. This results in an increased debt ratio and a lower return on total assets
B) finance leases are recorded on the balance sheet. This results in a decreased debt ratio and a lower return on total assets
C) finance leases are recorded on the balance sheet. This results in an increased debt ratio and a lower return on total assets
D) None of the above. Managers do not prefer operating leases
Q3) Discuss the implications of the proposal that operating/finance lease distinction be dropped.
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14
Chapter 13: Accounting for Employee Benefits
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Q1) The superannuation trust fund is a separate entity which manages the fund's assets and is responsible for the fund's obligations.The employer's only assets and liabilities are related to the accrual or deferral of the payments due to the superannuation plan.
Discuss whether you agree or disagree with the above approach to accounting for superannuation costs by employers.
Q2) In Australia,the attractiveness of salary packaging is being reduced by which of the following factors?
A) Fringe benefits tax which taxes the employer on non-cash benefits paid to the employee
B) The decreasing difference between personal tax rates and the company tax rate
C) Non-cash salary being taxable in the hands of the employee
D) All of the above
Q3) 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
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Chapter 14: Accounting for Financial Instruments
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Q1) A trader purchases 4 futures contracts with a total value of $100 when the price of the contracts (based on the SPI 200 share price index)is 3026.When these contracts expire,the index itself is at 2950 points and the price of the SPI 200 contract units is 2975.The trader has:
A) made a gain of $5100
B) made a loss of $5100
C) made a loss of $2550
D) made a gain of $2550
Q2) Discuss the disclosure requirements in AASB 7 Financial Instruments Disclosure and AASB 132 Financial Instruments Presentation.
Q3) The buyer of a put option on shares:
A) obtains the right to sell the shares at an agreed future time at their market price at that time
B) must sell the shares at an agreed future time at a price determined now
C) obtains the right to sell the shares at an agreed future time at a price determined now
D) must sell the shares at an agreed future time at their market price at that time
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Page 16
Chapter 15: Equity
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Q1) Notia Ltd,under an equity-based remuneration plan,grants 5 senior executives the option of buying shares at $4 per share.At the date of granting the option the shares have a market value of $5.00 each.One executive exercises the right to buy 2000 shares on l January 2010.In principle,the basic accounting entry for this transaction would be:
A) debit bank $10 000, credit share capital $10 000
B) debit remuneration expense $2000, debit bank $8000, credit share capital $10 000
C) debit bank $8000, debit general reserve $2000, credit share capital $10 000
D) none of the above
Q2) A scheme where a company provides employees with options to acquire shares in the company where the primary aim of the scheme is to reduce conflict between owners and employees is known as:
A) a compensatory plan
B) a non-compensatory plan
C) an employee plan
D) none of the above
Q3) Distinguish between compensatory and non-compensatory share option plans.How does AASB 2 suggest that each be accounted for?
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Chapter 16: The Income Statement
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Q1) The standard that requires the disclosure of auditor's remuneration and executives' remuneration in the published reports is:
A) AASB 1031
B) AASB 101
C) AASB 118
D) No accounting standard requires the disclosure of auditor's remuneration and executives' remuneration
Q2) If an entity receives a gift of an original painting from a customer with a fair value of $20 000,in return for services rendered,it would be recorded as:
A) debit to bank and credit to equity
B) debit to the asset painting and credit to revenue
C) debit to the asset painting and credit to equity
D) none of the above
Q3) Explain and discuss the advantages and disadvantages of the operating-profit and the comprehensive income approaches to profit measurement.Which approach do you think is the most useful for decision making?
Q4) AASB 101 allows preparers two options in the classification of items for the statement of comprehensive income statements.Discuss.
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Page 18
Chapter 17: The Cash Flow Statement
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Q1) All of these are possible definitions of 'funds' except:
A) working capital
B) investment
C) total resources
D) cash
Q2) Which information is not readily available from the statement of comprehensive income and the statement of financial position?
A) Information about new borrowings and loan repayments
B) Information about the acquisition and disposal of non-current assets
C) Information about new share issues
D) All of the above
Q3) Under AASB 107,dividends paid by a company to its shareholders are classified as:
A) investing outflows
B) financing outflows
C) operating inflows
D) none of the above
Q4) Discuss the concept of cash and cash equivalents.Provide examples to illustrate your answer.
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19
Chapter
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Q1) Many companies,especially larger companies,now include a highlights statement in their annual reports.What are the main items likely to be included in such a statement? What are the perceived benefits of giving this information? Also explain any possible disadvantages of publishing a highlights statement.
Q2) The 'current ratio' is usually calculated as:
A) current assets minus goodwill ÷ current liabilities
B) current assets ÷ current liabilities
C) current assets excluding inventory ÷ current liabilities
D) current liabilities ÷ current assets
Q3) Explain and illustrate,with simple examples,both the usefulness and any possible dangers in using the:
rate-of-return on total assets ratio
rate-of-return on equity ratio times dividends earned ratio
Why are these described as 'efficiency ratios'?
Q4) Discuss the benefits of the 'management approach' adopted by AASB 8.
Page 20
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Chapter 19: Further Financial Reporting Issues
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Sample Questions
Q1) A business shows the following figures for the current financial year:
\[\begin{array} { l r }
\text { Total assets } & \$ 80.0 \\
\text { Total liabilities } & \$ 40.0 \\
\text { (a) Long-term debentures } & \$ 2.5 \\
\text { (b) Cash on deposit } & \$ 3.5 \\
\text { (c) Asset revaluation reserve } & \$ 2.5 \\
\text { (d) Provision for doubtful debts } & \$ 3.0
\end{array}\] The items that are least likely to be considered as material are:
A) (b) and (d)
B) (a), (c) and (d)
C) (a), (b) and (c)
D) (a) and (c)
Q2) The treatment of items that clearly belong to past reporting period is a long standing problem.One way to handle this problem is to make adjustments to the retained earnings.The problem with this approach is that:
A) it could lead to manipulation of profit for the period
B) revenue and expenses are matched inappropriately
C) revenue and expenses are matched appropriately
D) none of the above
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Page 21
Chapter 20: Accounting for the Extractive Industries
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Q1) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
Q2) AASB 6 allows exploration and evaluation costs to be capitalised under certain circumstances.These include:
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
Q3) The successful-efforts method of accounting for exploration and evaluation costs in the extractive industries:
A) requires all such costs to be recognised as expenses
B) requires all such costs to be recognised as expenses until an area is abandoned or a commercial mineral deposit is found
C) requires all such costs to be recognised as assets until an area is abandoned or a commercial mineral deposit is found
D) none of the above
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Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) 'To recognise assets and liabilities when a firm construction contract is signed would be inconsistent with the requirements of AASB 111'.Discuss this statement in reference to the framework.
Q2) Using the percentage-of-completion method for recognising profit on a construction contract is advisable in situations where:
A) future costs are likely to fluctuate substantially
B) the ability of either party to the contract to satisfy the terms of the contract is unknown
C) the contract price is clearly specified in a non-cancellable contract
D) the percentage-of-completion method is not advisable in any of the above situations
Q3) The completed-contract method for recognising profit on a construction contract is a conservative method of profit recognition because:
A) it results in construction costs being written-off as they are incurred
B) it does not anticipate profit
C) it recognises progress billings as revenue when the cash is received
D) all of the above
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Chapter 22: Accounting for Agricultural Activity
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Q1) Agricultural activity under the heading of Biological assets such as animals is most appropriately measured for accounting purposes at:
A) standard value
B) net realisable value
C) discounted market value
D) historical cost
Q2) Australian Accounting Standard AASB '141 Agricultural Activity' requires disclosure of the following items of information:
A) the method of calculating the replacement cost of biological assets
B) the basis for classifying biological assets either as inventory or as plant and equipment
C) the nature of biological assets, including their physical quantity
D) all of the above
Q3) Agricultural activity should:
A) sometimes be classified as non-current assets
B) always be classified as current assets
C) always be classified as non-current assets
D) always be classified as inventories
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24
Chapter 23: Accounting for Superannuation Plans
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Q1) The general purpose financial reports of a superannuation plan should provide information to assist in answering the following question:
A) Who are the trustees?
B) Is the plan solvent?
C) What are the names of the professional advisers?
D) None 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) Explain the essential features of a defined benefit,externally managed,non-contributory superannuation plan whose benefits are not vested.
Q4) Discuss the differences between the requirements of ED179 and AAS 25.
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Chapter 24: Accounting for Financial Institutions
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Q1) The main expense item for a bank is usually:
A) bad and doubtful debts
B) losses on foreign exchange dealings
C) staff salaries, wages and on-costs
D) interest paid on borrowings
Q2) Banks often classify investments held by them as either trading assets or available for sale investments.Initially,these investments are required to be measured at:
A) lower of cost and net market value
B) market value for trading securities and cost for investment securities
C) market value for trading securities and amortised cost for investment securities
D) fair value
Q3) The main revenue item for a bank is usually:
A) net interest income
B) profit on foreign exchange dealing
C) fees charged for granting loans or altering the terms and conditions of loans
D) interest on loans and investments
Q4) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
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Chapter 25: Financial Reporting in the Public Sector
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Q1) When the legislation that creates a public sector entity also specifies particular accounting methods to be used or disclosures to be made,these requirements:
A) are in addition to those required by AASB's
B) allow the government entity to select the method that best reflects the economic circumstances
C) are superceded by the requirements of AASB standards
D) may be disregarded if the requirements of AASB 101 are met
Q2) When a Government Trading Enterprise is restructured into a company and at least some shares are held by private investors it is said to be:
A) corporatised
B) privatised
C) publicised
D) globalised
Q3) The main issues relating to the recognition of land under roads include:
A) uncertainty about which entities control land under roads
B) there is no recognised method for reliably measuring land under roads
C) there is no direct economic benefits associated with land under roads
D) all of the above
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) International accounting standards are applicable:
A) only to for-profit entities in the private sector
B) to for-profit and not-for-profit entities and government business enterprises
C) to for-profit and not-for-profit entities but not to government business enterprises
D) to for-profit entities including government business enterprises
Q2) The International Accounting Standards Board is:
A) an independent private sector body located in the United Kingdom
B) a joint body set up by the International Accounting Standards Committee and the International Organisation of Securities Commissions
C) a joint body established by the International Accounting Standards Committee and the United States Securities and Exchange Commission
D) based in London and is an agency of the United Kingdom government
Q3) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
Q4) Describe and explain the strategies adopted by the AASB in order to achieve the objective of international harmonisation of accounting standards in Australia.
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Page 28
Chapter 27: Foreign Currency Translation
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Q1) Explain,using simple numerical example(s),how hedging a foreign currency transaction can remove uncertainty about the outcome of the transaction.Based on the same example(s),illustrate both how hedging can prevent a business from incurring a loss because of movements in exchange rates and also how it can cause a business to miss out on a potential gain from such movements.
Q2) A fair value hedge that meets the requirements under AASB 139 for hedge accounting is accounted for in which of the following ways?
A) Any gain or loss on the hedged item attributable to the hedge risk is recognised in the profit and loss
B) Any gain or loss from re-measuring the hedging instrument at fair value or its foreign currency amount is recognised as equity
C) When a firm commitment to acquire an asset is entered into and it is a hedged item, the initial carrying amount of the asset should never include the cumulative change in fair value of the commitment previously recognised in the balance sheet
D) None of the above describes the correct accounting for a fair value hedge
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29
Chapter 28: Accounting for Corporate Social Responsibilities
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21 Verified Questions
21 Flashcards
Source URL: https://quizplus.com/quiz/71413
Sample Questions
Q1) 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
Q2) 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
Q3) The Australian government ratified the Kyoto Protocol on:
A) 3 December 2007
B) 1 January 2005
C) 11 December 1997
D) 16 February 2005
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Chapter 29: Ethics in Accounting
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Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) Where a conflict of interest arises for an accountant so that safeguarding the interest of one client may cause harm to another client,it is generally accepted that rules of professional ethical conduct require that:
A) the accountant should not continue to advise both clients
B) the accountant should ensure that information about either client is not made available by anyone to the other client
C) the accountant should ensure that information about either client is not made available by anyone to the client who might be harmed by the information
D) the accountant should not continue to advise either client
Q2) 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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