Accounting Theory Exam
Bank
Course Introduction
Accounting Theory delves into the conceptual foundations and underlying principles that form the basis for accounting practices and standards. The course explores the development, relevance, and application of accounting theories throughout history, examining key frameworks, debates, and ethical considerations that shape the profession. Students will analyze how accounting information is used in economic decision-making, the influence of regulatory bodies, and the impact of political, social, and technological changes on accounting practices. Emphasis is placed on critical evaluation of current accounting standards, alternative measurement systems, and the ongoing evolution of financial reporting to meet the needs of diverse stakeholders.
Recommended Textbook
Financial Accounting An Integrated Approach 6th Australia Edition by Trotman
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17 Chapters
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Chapter 1: Introduction to Financial Accounting
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Q1) The owner of a corner store keeps separate private and business transactions.To which financial statement assumption does this relate?
A) Materiality
B) Accounting entity
C) Accounting period
D) Going concern
Answer: B
Q2) Which of the following use accounting information?
1)Shareholders
2)Banks
3)Trade unions
A) 1 and 2 only
B) 2 and 3 only
C) 1 and 3 only
D) 1, 2 and 3
Answer: D
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Page 3
Chapter 2: Measuring and Evaluating Financial Position and Financial Performance
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Sample Questions
Q1) What is James's current ratio?
A) 4.2:1
B) 4.7:1
C) 5:1
D) 6:1
Answer: D
Q2) If a company pays a 12-month insurance premium for $2400 on 1 June 2016,then at 30 June 2016 the accounts will show:
A) a prepayment of $2200 in the balance sheet and an insurance expense of $200 in the profit and loss account.
B) a prepayment of $200 in the balance sheet and an insurance expense of $2000 in the profit and loss account.
C) a $2400 asset in the balance sheet.
D) a $2400 expense in the profit and loss statement.
Answer: A
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Chapter 3: The Double-Entry System
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Sample Questions
Q1) During the year,the liabilities of a company decreased by $32 034 and the assets decreased by $16 035.Consequently the shareholders' equity must have:
A) decreased by $15 999.
B) increased by $15 999.
C) increased by $48 069.
D) decreased by $48 069.
Answer: B
Q2) If a payment is received from accounts receivable:
A) shareholders' equity increases and an asset decreases.
B) an asset increases and a liability increases.
C) an asset decreases and a liability decreases.
D) one asset increases and another asset decreases.
Answer: D
Q3) An electricity account was paid.There was no previous record of the charge.
A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.
Answer: B
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Page 5
Chapter 4: Record-Keeping
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Q1) What source document supports the provision of services on credit?
A) Supplier's invoice received by the business
B) A copy of a credit note issued by the vendor
C) Cash receipt
D) Invoice sent by the business to a customer
Q2) Which of the following is NOT an example of an accounting transaction?
A) A salesman disappears with a company vehicle and merchandise.
B) The bank charges interest on a loan.
C) A customer settles an account by undertaking delivery work for the business.
D) A purchase order for inventory is sent to a supplier.
Q3) A trial balance would detect which of the following errors?
A) Failure to record depreciation for the year.
B) A credit purchase recorded in accounts payable account as $927 instead of $972.
C) A cash purchase of inventory recorded as a debit to plant and a credit to accounts payable.
D) A salesman failing to record a cash sale,and retaining the proceeds.
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Chapter 5: Accrual Accounting Adjustments
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Q1) Able Ltd operates on a five-day working week.Employees are paid on Thursday for work completed to Wednesday.The weekly wages bill is $40 000.If 30 June 2016 fell on a Tuesday,what was the accrued wages payable on 30 June 2016?
A) $8000
B) $16 000
C) $32 000
D) None of the answers provided
Q2) If the Prepaid rent account before adjustment at the end of the month has a debit balance of $1500,representing a payment made on the first day of the month,and if the monthly rent was $1000,the amount of prepaid rent that would appear on the balance sheet at the end of the month,after adjustment,is:
A) $500.
B) $1000.
C) $1500.
D) $2500.
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Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Sample Questions
Q1) Agency theory tends to focus on:
A) the decision-making role of accounting information.
B) the stewardship role of accounting information.
C) future orientated decision making.
D) the internal control system.
Q2) The external auditor renders an adverse opinion when he/she:
A) is unable to express an opinion either way because of a limitation in the work he or she was able to carry out.
B) considers that the financial statements are not presented fairly in accordance with GAAP.
C) is generally satisfied except for a specified departure from GAAP in the statements. D) is unable to obtain sufficient reliable audit evidence.
Q3) Identify the accounting concept or principle that relates to the statement in the following question: Information should have predictive value and/or feedback value.
A) Relevance
B) Faithful representation
C) Materiality
D) Comparability
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) In preparing the monthly bank reconciliation,Jon Ltd ascertains that there is a direct credit from a customer for $500 and an interest on overdraft charge of $760.Outstanding cheques total $9400 and there is a deposit in transit for $2900.It will be necessary to make journal entries for:
A) the outstanding cheques of $9400 and the deposit in transit of $2900.
B) the direct credit for $500 and the interest charge of $760.
C) only the interest on overdraft charge of $760.
D) the direct credit for $500,the interest charge of $760 and outstanding cheques of $9400.
Q2) Indicate which of the features of an effective internal control system are involved in the practices set out in the following question: Segregation of duties involve:
A) clearly establishing responsibility lines.
B) maintaining effective records.
C) separating record-keeping from handling of assets.
D) physically protecting sensitive assets.
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Chapter 8: Accounts Receivable and Further
Record-Keeping
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Sample Questions
Q1) K Ltd reported beginning and ending balances in the Allowance for doubtful debts account of $723 000 and $904 000 respectively.It also reported that write-offs of bad debts amounted to $648 000.Assuming that no previously written-off accounts had been collected,what amount did K Ltd record as bad debt expense for the period?
A) $467 000
B) $648 000
C) $829 000
D) $904 000
Q2) Management uses the ageing approach method to calculate the allowance for doubtful debts.An analysis of the ageing of accounts receivable shows a substantial increase in the accounts receivable in the over-90-days category.Management does not adjust the allowance for doubtful debts at year-end.As a result:
A) assets are overstated,and net income is overstated.
B) assets are overstated,and net income is understated.
C) assets are understated,and net income is overstated.
D) assets are understated,and net income is understated.
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Chapter 9: Inventory
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Q1) Which,if any,of the following cost flow assumptions is NOT affected by whether a periodic or perpetual control system is used?
A) LIFO
B) FIFO
C) Weighted average cost
D) Moving weighted average cost
Q2) In times of inflation,which cost flow assumption provides the highest inventory asset?
A) FIFO
B) Moving weighted average
C) LIFO
D) It depends on the rate of inflation
Q3) What was Epsilon Pty Ltd's cost of goods sold for the year?
A) $47 500
B) $57 500
C) $60 000
D) $62 500
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11
Chapter 10: Noncurrent Assets
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Sample Questions
Q1) Equipment that cost $500 000 and had accumulated depreciation of $300 000 was sold for $180 000.This results in a:
A) $20 000 gain.
B) $20 000 loss.
C) $180 000 gain.
D) $320 000 loss.
Q2) What was the balance of accumulated depreciation at 31 December 2018?
A) $84 000
B) $93 600
C) $97 440
D) $60 000
Q3) Which of the following do NOT need to be disclosed in financial statements?
A) Details concerning revaluations.
B) Cost and accumulated depreciation by major classes of assets.
C) A description of the enterprise's accounting policies with respect to depreciation/amortisation.
D) Reasons for assets not being revalued.
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Page 12
Chapter 11: Liabilities
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Sample Questions
Q1) Which of the following would be part of the journal entry on 1 January 2016?
A) Dr Discount on bonds $11 471
B) Dr Premium on bonds $11 471
C) Cr Discount on bonds $11 471
D) Cr Premium on bonds $11 471
Q2) When unearned revenue increases:
A) cash increases.
B) an expense increases.
C) an expense decreases.
D) revenue increases.
Q3) What is the interest expense for the first six months?
A) $4426
B) $5000
C) $5312
D) $6000
Q4) Interest owed to the bank by MNO Ltd would appear on MNO's balance sheet as:
A) accounts payable.
B) an accrual on the balance sheet.
C) a provision on the balance sheet.
D) contingent liability.
Page 13
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Chapter 12: Completing the Balance Sheet
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Q1) XYZ Limited paid $2 million for 100 per cent of the voting shares of ABC Limited and determined the assets to be worth $3 million and the liabilities $800 000.What was the goodwill on consolidation at the date of acquisition?
A) $100 000
B) $200 000
C) $300 000
D) None of the answers provided
Q2) If Yu Ltd used the cost method,what would have been the impact of Ping Ltd's 30 June 2016 earnings announcement?
A) Dividend revenue would have increased by $200 000.
B) Investment in Ping Ltd would have increased by $200 000.
C) Investment in Ping Ltd would have decreased by $200 000.
D) No record would have been made.
Q3) The journal entry on 12 February 2016 would include:
A) Dr Interim dividend declared,$25 000.
B) Cr Cash,$25 000.
C) Cr Retained profits,$25 000.
D) none of the answers provided.
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Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Q1) How much profit was earned during the third year if the percentage of completion method was used?
A) $800 000
B) $440 000
C) $400 000
D) $360 000
Q2) With respect to services provided,it is customary to recognise revenue when the:
A) customer requests the service.
B) supplier agrees to provide the service.
C) service is provided.
D) service is paid for.
Q3) The most common critical event in the revenue generation sequence is:
A) manufacture of the goods.
B) delivery to customer.
C) collection of cash.
D) receipt of the order.
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) Dividends of $100 000 were declared during the year,and the balances in the dividends payable account at the beginning and end of the year were $15 000 and $25 000 respectively.What amount would be reported as payment of dividends in the cash flows from the financing activities section of the statement of cash flows?
A) $90 000
B) $25 000
C) $100 000
D) $110 000
Q2) The amount of cash paid to suppliers during the year was:
A) $10 000.
B) $501 000.
C) $510 000.
D) $519 000.
Q3) What were the proceeds from sale of motor vehicles?
A) $30 000
B) $40 000
C) $50 000
D) $140 000
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Chapter 15: Financial Statement Analysis
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Q1) Additional credit sales of $2 million (cost price $1.5 million)are made.This transaction will:
A) increase ROA,ROE and CR.
B) increase ROA and ROE but not CR.
C) increase ROA and CR but not ROE.
D) increase ROA,increase ROE and decrease CR.
Q2) Which of the ratios listed helps to indicate the efficiency with which the resources of the company are being utilised to generate profit?
A) Current ratio
B) Profit margin
C) Quick ratio
D) Return on assets
Q3) Which of the following could NOT explain an increase in the return on equity ratio?
A) Share buyback
B) Declaring a final dividend
C) Increase in profits
D) Purchase of land on credit
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Chapter 16: Accounting Policy Choices
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Q1) Swing Ltd uses FIFO for its inventory,which is valued at $21 000.It is considering a change to moving weighted average,which would change the valuation of inventory to $22 500.Which of the following would be decreased by the change?
A) Cost of goods sold
B) Sales
C) Liabilities
D) Retained profits
Q2) What effect would such a policy change have on net profit before tax?
A) There would be a $75 000 reduction.
B) There would be a $45 000 reduction.
C) There would be a $30 000 reduction.
D) There would be no effect.
Q3) Which of the following is NOT an area in which companies typically make policy accounting choices?
A) When to recognise revenue
B) The method of depreciation to use
C) How to value inventories
D) Dividend policy
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18
Chapter 17: Sustainability Reporting
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Q1) An organisation has direct control over the amount of emissions it creates through:
A) its use of fuel to operate machinery.
B) outsourcing printing activities.
C) use of electricity supplied by an electrical company.
D) no means;an organisation does not have direct control over emissions.
Q2) Which of the following is an environment performance indicator?
A) Policy,practices and spending on locally based suppliers
B) Direct economic value generated
C) Energy consumption within the organisation
D) Development and impact of infrastructure investments and services supported
Q3) For which item is the Global Reporting Initiative not useful?
A) Demonstrating how the organisation is influenced by expectations about sustainable development
B) Sustaining the level of dividends to shareholders
C) Comparing performance within an organisation
D) Assessing sustainability performance
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