Accounting Theory Practice Exam
Course Introduction
Accounting Theory explores the fundamental concepts, principles, and frameworks that underpin the practice of accounting. The course examines the philosophical, political, and economic rationales that shape accounting standards and reporting requirements. Students will analyze the evolution of accounting thought, study various accounting models, and discuss current debates and emerging trends within the field. By critically evaluating the objectives and limitations of accounting information, learners will gain a deeper understanding of the role accounting plays in informing decision-making processes for businesses, regulators, and other stakeholders.
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) The AASB has responsibility for making accounting standards applicable to:
A) entities coming under the Corporations Act, entities in the public sector and the remainder of the non-corporate sector entities
B) entities coming under the Corporations Act
C) entities coming under the Corporations Act and entities in the public sector
D) none of the above
Answer: A
Q2) The body that oversees the operation of the Auditing and Assurance Standards Board is:
A) The Financial Reporting Council (FRC)
B) ASIC
C) AASB
D) ASX
Answer: A
Q3) Interpretation Advisory Panels make recommendations on particular issues to:
A) AASB
B) UIG
C) ASIC
D) ASX
Answer: A
Page 3
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Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) In establishing external reporting requirements,the Corporations Act distinguishes between:
A) large and small proprietary companies
B) service and non-service entities
C) legal and non-legal entities
D) reporting and non-reporting entities
Answer: A
Q2) Which of these is the least likely to be able to use their influence to obtain special purpose reports to meet their needs for financial information?
A) Governments
B) Institutional investors
C) Small shareholders
D) Major lenders
Answer: C
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) In the Framework's definition of expenses:
A) there is no distinction between expenses and losses
B) expenses must be matched against income
C) the causes of expenses are specifically identified
D) if the definition is satisfied the item must be recognised in the financial statements
Answer: A
Q2) 'That quality of financial information which exists when that information can be depended upon to represent faithfully,and without bias or undue error,the transactions or events that it purports to represent or could reasonably be expected to represent' (The Framework para.31),is:
A) understandability
B) reliability
C) timeliness
D) comparability
Answer: B
Q3) Explain and discuss three essential characteristics of an asset as defined by the Framework.
Answer: Not Answer
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) 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
Q2) The estimated current net market value of an asset in the ordinary course of business is known as:
A) current cash equivalent
B) replacement cost
C) opportunity cost
D) discounted value of future cash flows
Q3) Which of the following provides an example of measurement based on a nominal scale?
A) Postcode
B) Temperature using centigrade
C) Temperature using Fahrenheit
D) The outcome of an election process
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Chapter 5: The Choice of Accounting Methods
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Q1) The order of preference set out in AASB 108 for reliance on authoritative pronouncements as a guide to selecting an accounting policy when there is no specific Australian standard is:
A) Related Australian Standards, International Accounting Standards, the Framework, accounting standards from other jurisdictions using a similar conceptual framework and accepted industry practices
B) Related Australian Accounting Standards, the definitions, recognition criteria in the Framework, accounting standards from other jurisdictions using a similar conceptual framework and accepted industry practices
C) Related Australian Standards and the Framework
D) None of the above
Q2) The choice of accounting methods and/or their use to achieve a particular outcome in the financial reports is known as:
A) environmental accounting
B) creative accounting
C) imaginative accounting
D) bottom of the harbour accounting
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Chapter 6: The Balance Sheet: an Overview
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Q1) The availability of assets to meet financial commitments as they fall due is known as:
A) solvency
B) control over resources
C) gearing
D) asset turnover
Q2) 'Disclosure of information about the financial position of the reporting entity involves disclosure of information about its control over resources,financial structure,capacity for adaptation and solvency.' SAC2 para 32.
Explain and discuss this statement.
Q3) Under AASB 101,the 'average time between the acquisition of materials entering into a process and their realisation in cash or as an instrument that is readily convertible into cash' is known as:
A) production cycle
B) production line
C) economic cycle
D) operating cycle
Q4) Identify and discuss the requirements concerning the classification of liabilities contained in AASB 101.
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8
Chapter 7: Accounting for Current Assets
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Q1) Explain and discuss the criteria contained in AASB 101 for distinguishing between current and non-current assets.
Q2) If inventory prices are rising:
A) the LIFO method will give the lowest profit
B) the LIFO method will give the highest profit
C) the FIFO method will give the lowest profit
D) the LIFO method will give the highest closing inventory valuation
Q3) Which of the following is correct?
A) Inventory that is held by an agent for sale on consignment but is owned by a principal is included in the inventory of the principal
B) Inventory sold under hire purchase is normally treated as an asset of the buyer even though it is owned by the seller
C) Both are correct
D) Neither is correct
Q4) A disadvantage of the LIFO method of inventory valuation is:
A) it gives a poor matching of current costs with current revenues
B) its use accentuates the business cycle
C) closing inventory on the balance sheet may be undervalued
D) all of the above are disadvantages
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) Under AAS 29,Paragraph 15.1 'Financial Reporting by Government Departments' the entry that is required by a government department to record the fair value of a donated asset is:
A) debit asset, credit loan
B) debit asset, credit revaluation surplus
C) would not need to be recorded
D) debit asset, credit revenue
Q2) Under AASB 116 if an item of property,plant and equipment is acquired for cash,the cost includes:
A) the purchase price after deducting trade discounts and rebates
B) the insurance premium paid to cover the asset for the first 12 months of its life
C) any import duties
D) all of the above
E) both A and C
Q3) Which of these would be classed as a current asset?
A) Goodwill
B) Investment not expected to be realised within 12 months
C) Delivery vehicle
D) Cash at bank
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Chapter 9: Accounting for Company Income Tax
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Q1) Empirical research on whether tax-effect accounting should continue to be applied indicates that:
A) share prices are more highly associated with taxable income, and therefore financial reports should conform to the taxation treatments
B) share prices are more highly associated with accounting income, and therefore accounting standards should not be changed
C) share prices are equally associated with both accounting and taxable income, and therefore both accounting and taxation income should be reported in the financial reports
D) share prices are unrelated to either accounting or taxation income
Q2) Accounting Profit and Taxable Income can often differ because:
A) a tax deduction is not allowed for bad debts
B) revenue received in advance is not subject to tax
C) general purpose financial reporting and the income tax system have differing objectives
D) the Australian Taxation Office does not recognise depreciation as a legitimate expense
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Chapter 10: Accounting for Investments
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Q1) Lindy Ltd acquired an investment property for cash on 1 January 20X0 at a cost of $1 500 000.Its fair value on 31 December 20X0 was $2 000 000.What accounting entry would be made under AASB 140 on 31 December 20X0 if Lindy Ltd had elected to use the fair value model for the property?
A) Dr investment property $500 000, cr gain from increase in fair value of investment property \[\$ 500000\]
B) Dr investment property $500 000, cr revaluation reserve $500 000
C) Dr investment property $500 000, cr accumulated depreciation $500 000
D) None of the above
Q2) Lindy Ltd acquired an investment property for cash on 1 January 20X0 at a cost of $1 500 000.Its fair value on 31 December 20X0 was $2 000 000.What accounting entry would be made under AASB 140 on 31 December 20X0 if Lindy Ltd had elected to use the cost value model for the property and depreciation was to be charged at 10% per annum on cost?
A) Dr investment property $500 000, cr accumulated depreciation $500 000
B) Dr depreciation expense $150 000, cr accumulated depreciation $150 000
C) Dr depreciation expense $200 000, cr accumulated depreciation $200 000
D) Dr investment property $500 000, cr gain from increase in fair value of investment property \[\$ 500000\]
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Chapter 11: Accounting for Intangible Assets
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Q1) Purchased computer software should be:
A) recognised as an asset and recorded at cost
B) amortised over its useful life
C) subject to an impairment test
D) all of the above
Q2) AASB 138 requires that entities classify their intangible assets into those with finite lives and those with indefinite lives.Which of these is a factor that tends to limit the useful life of intangible assets?
A) Technological obsolescence
B) Contractual and legal rights
C) Uncertainty
D) All are factors
Q3) Internally generated goodwill:
A) is not recognised because it does not provide future economic benefits
B) is not recognised because of the difficulty of valuing it reliably
C) is recognised because it provides a future economic benefit
D) A and B are incorrect
Q4) 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 'sale-and-leaseback' transaction:
A) can be classified as neither a finance lease nor an operating lease
B) is always classified as a finance lease
C) can be classified as either a finance lease or an operating lease
D) is always classified as an operating lease
Q2) Which of the following is not a typical characteristic of an operating lease?
A) It can be used for almost any type of asset
B) It is essentially a rental agreement
C) It is similar to a leveraged lease
D) It is cancellable by the lessee at little or no cost
Q3) Discuss the implications of the proposal that operating/finance lease distinction be dropped.
Q4) Leases described as 'off balance sheet' are:
A) operating leases
B) finance leases
C) in effect a secured loan
D) A and C above
Q5) How is a finance lease distinguished from an operating lease? Give an explanation of the meaning and significance of any technical terms used in your answer.
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Chapter 13: Accounting for Employee Benefits
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Q1) Sick leave entitlements should be reflected as a liability in accordance with AASB 119 when:
A) it is non-accumulating sick leave
B) it is accumulating sick leave which is vesting
C) it is accumulating sick leave which is non-vesting
D) never
Q2) Discuss the measurement issues associated with accounting for short-term and long-term employee benefits.
Q3) Under AASB 119,the recognition criteria for liabilities for profit sharing and bonus plans is:
A) It is probable the liability will be settled and the amount of the liability can be measured consistently
B) It is reasonably certain the liability will be settled
C) It is probable the liability will be settled
D) The entity has a present legal or constructive obligation to settle the liability, and the amount of the liability is capable of being measured reliably
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15
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) A futures exchange clearing house is mainly concerned with:
A) calling in margins from traders as and when required
B) establishing and collecting deposits from brokers trading on the exchange
C) calculating the gains and losses made by futures traders
D) all of the above
Q3) AASB 139 requires that,subsequent to initial recognition,financial liabilities other than those designated as at fair value through profit and loss must be measured at amortised cost using the:
A) effective interest method
B) nominal interest method
C) simple interest method
D) compound interest method
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Chapter 15: Equity
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Q1) Which of these items,under AASB 101,need not be disclosed on the face of the balance sheet?
A) Minority interest
B) The number of shares issued and the extent to which they are fully paid
C) Retained earnings attributable to equity holders of the parent
D) None of the above, i.e., all must be disclosed on the face of the balance sheet
Q2) When a company buys back some of its shares and the amount used to pay dividends remains the same after the buyback,the return on each ordinary share will:
A) increase
B) decrease
C) remain the same
D) it depends
Q3) Which of these is a way in which a company can raise capital through the issue of shares?
A) Dividend reinvestment plan
B) Employee share plan
C) Rights issue
D) All of the above
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17
Chapter 16: The Income Statement
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Q1) Under AASB 101,the nature and amount of which type of items should be disclosed separately?
A) Extraordinary items
B) Significant items
C) Material items
D) None of the above
Q2) Which statement in relation to the treatment of expenses under AASB 101 is correct?
A) It is optional for an entity with revenue from the sale of goods to disclose cost of sales
B) Expenses should be classified according to their nature or their function
C) Expenses are defined exactly in accordance with the Framework
D) A and B are correct
Q3) The inclusion of increments and decrements of non-current assets required by the comprehensive income approach:
A) may reduce the reliability of the financial statements
B) must always be confirmed as an arms-length transaction
C) A and B above
D) None of the above
Q4) Define income and explain how it differs from revenue.
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18
Chapter 17: The Cash Flow Statement
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Q1) Under AASB 107,which of the following must be included in notes attached to the cash flow statement?
A) Assets acquired by issuing shares
B) A reconciliation of cash flows from operating activities with net profit
C) Proceeds from the sale of an investment
D) Both A and B
Q2) Which statement concerning a funds statement based on the working capital definition of funds is not correct?
A) It includes transactions that have no effect on the components of working capital, e.g., the purchase of inventory
B) It omits many transactions that could be important to users for decision making
C) The difference between sources and uses of working capital will be equal to the change in working capital between two successive balance sheets
D) None of the above, i.e., all of the statements are correct
Q3) Discuss the concept of cash and cash equivalents.Provide examples to illustrate your answer.
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19
Chapter 18: Financial Reporting: Segment Reporting, value
Added Statements, highlights Statements and
Financial Information
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Q1) Henry James Ltd,a large retailing business,reports the following (all in $ millions):
\[\begin{array} { l r }
\text { Cost of goods sold } & \$ 52.0 \\
\text { Cost of services purchased } & 16.0 \\
\text { Salaries and wages } & 12.0 \\
\text { Interest expense } & 0.2 \\
\text { Depreciation and amortisation } & 2.0 \\
\text { Dividends paid } & 1.2 \\
\text { Sales revenue } & 90.0
\end{array}\]
The 'gross value added' for this business is:
A) $6.4
B) $10.0
C) $22.0
D) $38.0
Q2) 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.
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Chapter 19: Further Financial Reporting Issues
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Q1) Events after the reporting date are of two types:
Type 1 Those that provide new evidence about conditions that existed at the reporting date
Type 2 Those that relate to new conditions arising after the reporting date
Which of the following statements is correct?
A) Only type 1 events affect the figures in the financial statements of the previous period
B) Only type 2 events affect the figures in the financial statements of the previous period
C) Both type 1 and type 2 events affect the figures in the financial statements of the previous period
D) Neither type 1 nor type 2 events affect the figures in the financial statements of the previous period
Q2) The Australian Securities Exchange requires listed companies to prepare and file financial reports:
A) quarterly
B) half-yearly
C) annually only
D) monthly
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Chapter 20: Accounting for the Extractive Industries
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Q1) Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources does not identify which of the following phases in the exploitation of mineral,oil or gas deposits?
A) Production
B) Restoration
C) Construction
D) Evaluation
Q2) AASB 6 is an activity based standard; as such it does not fully cover other areas of extractive industries.Make a list and briefly explain the other relevant standards that a mining company has to consider in producing its financial statements under the new regime.
Q3) The full-cost method of accounting for exploration and evaluation costs in the extractive industries:
A) requires that all such costs be recognised as expenses
B) requires that all such costs be recognised as assets
C) allows more timely disclosure of the costs of unsuccessful exploration activities
D) gives asset values closely approximating the value of mineral deposits that are discovered
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Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) During the year ended 30 June 20X0,Endurance Lands Ltd sold seven blocks of land for the following prices: \[\begin{array}{l}
\text { Blocks } 1 \text { and } 2 \quad \$ 50000 \text { each }\\ \text { Blocks } 3 \text { to } 5 \quad \$ 56000 \text { each }\\
\text { Blocks } 6 \text { and } 7 \quad \$ 62000 \text { each } \end{array}\]
The average cost of each of blocks 1 and 2 was $45 000 and of each of blocks 3 to 7 was $46 000.In early July 20X0,before the financial statements were completed,the purchaser of Block 3 was declared bankrupt and the contract for sale of the land was rescinded.Also in early July,the company agreed that the purchaser of Block 2 would pay half the purchase price immediately but could delay paying the other half until July 20X1.The total profit on the sale of land for the year ended 30 June 20X1 should be recorded as:
A) $62 000
B) $72 000
C) $57 000
D) $52 000
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Page 23
Chapter 22: Accounting for Agricultural Activity
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Q1) Applying fair value to agricultural activity is assumed on the basis that it can be measured reliably.What do you think could potentially cause an asset's measurement to be unreliable,and why? How detailed should be the disclosure of any inherent unreliability?
Q2) Agricultural assets that are plants or trees are most appropriately measured for accounting purposes at:
A) net realisable value
B) replacement cost
C) net present value
D) historical cost
Q3) 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
Q4) Describe the sustained-yield method and the standard method of measuring forestry assets.
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Chapter 23: Accounting for Superannuation Plans
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Q1) AAS 25 applies specifically to superannuation plans and:
A) overrides the Australian equivalent to IFR's
B) requires the preparation of information about the rights and benefits of individual members
C) applies only to private sector superannuation plans
D) all of the above
Q2) The trustees of a superannuation fund can transfer their responsibility for the general conduct of the fund:
A) if it is non-contributory
B) if it provides portable benefits
C) if the fund is externally managed
D) in none of the above cases
Q3) The inclusion of a report of the trustees of a superannuation plan is:
A) required by AAS 25
B) the same as an actuarial report
C) recommended by the ASFA
D) not relevant for a self-managed plan
Q4) Explain the essential features of a defined benefit,externally managed,non-contributory superannuation plan whose benefits are not vested.
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Chapter 24: Accounting for Financial Institutions
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Q1) 'Reinsurance' occurs when:
A) a person insures property with several different insurers
B) an insurer insures their own risks with other insurers
C) a person reinstates their insurance policy after making a claim
D) an insurer accepts a claim and writes a new policy for the same customer
Q2) An insurance risk:
A) is a financial risk
B) results in risk being transferred from the policy holder to the insurer
C) both A and B
D) none of the above
Q3) What is the essential purpose of a general insurance policy? List and briefly explain the nature of each of the main items of (a)income and (b)expense for a general insurance business.Similarly,list and briefly explain the nature of each of the major (c)assets and (d)liabilities of a general insurance business.
Q4) Discuss the required treatment of Goodwill under AASB 3 'Business Combinations'.Previously,banks departed from this treatment in their accounting practices.Explain their justification and provide reasons why this justification is inadequate.
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Chapter 25: Financial Reporting in the Public Sector
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Q1) 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
Q2) AASB 1052 requires:
A) local governments to disclose financial information by function
B) government departments to disclose financial information about service costs and achievements
C) government departments to disclose the assets deployed and the liabilities incurred by each of their activities
D) all of the above
Q3) All of these are essential features of most of the definitions of infrastructure assets,except:
A) they are usually very profitable
B) they are necessary to sustain living standards
C) they are generally immovable
D) none of the above, i.e., all are essential features of infrastructure assets
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Page 27
Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) Australia adopted international accounting standards:
A) on 30 June 2005
B) on 31 December 2005
C) on 1 January 2005
D) on 31 March 2005
Q2) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
Q3) Which of these statements is not correct concerning the adoption by Australia of international accounting standards?
A) Where words need to be changed in AASB adaptations of international standards to accommodate Australian legislation, these are identified by the use of 'Aus' paragraphs
B) Australian standards, where there is no international equivalent, have been withdrawn
C) The AASB is committed to ensuring that AASB equivalents will be issued for all international accounting standards
D) None of the above, i.e., all are correct statements
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28
Chapter 27: Foreign Currency Translation
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Q1) An Australian company sells goods worth $AU 2000 to a UK company and the goods are invoiced and accepted in Australian dollars.At the date of sale,the exchange rate is $AU 1.00 = £ STG 0.40.At the date the goods are paid for,the exchange rate is $AU 1.00 = £ STG 0.39.The Australian company should make the following entry to record the payment received:
A) Dr Cash at Bank \(\quad \$ 2020\)
Cr Exchange Gain\(\quad \$ 20\)
Cr Accounts Receivable\(\quad \$ 2000\)
B) \(\begin{array} { l l l }
\text { Dr Cash at Bank } & \$ 2000 \\
\text { Cr Accounts Receivable }& \$ 2000\\
\end{array}\)
C)\(\begin{array} { l r } \text { C) Dr Cash at Bank } & \$ 1980 \\ \text { Dr Exchange Loss } & \$ 20\\\text {Cr Accounts Receivable}&\$2000 \end{array}\)
D) None of the above
Q2) There are four methods suggested for translating foreign currency financial statements.Identify these four methods and explain the translation methods used under each.
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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) 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
Q2) 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
Q3) The 'social performance' aspect of sustainability (or triple-bottom line)reporting is most likely to include details of:
A) total wages and salaries paid
B) investments in employee health and safety
C) steps taken to reduce greenhouse gas emissions
D) all of the above
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Chapter 29: Ethics in Accounting
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20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) Which of the following statements about the costs and benefits of unethical behaviour is not true?
A) The benefits of unethical behaviour are nearly always material
B) The costs of unethical behaviour are nearly always material
C) The penalties for unethical behaviour are not imposed in many cases
D) A cost of unethical behaviour may be the loss of freedom of choice in future decisions about whether to act ethically
Q2) 'Society-imposed costs' of unethical behaviour include:
A) destruction of professional reputation
B) penalties imposed through legal proceedings
C) penalties imposed by disciplinary proceedings by a relevant professional body
D) all of the above
Q3) The Code of Ethics for Professional Accountants is best described as:
A) deontological in nature
B) voluntary for all members of the ICAA, CPA Australia and the NIA
C) descriptive in nature
D) teleological in nature
Q4) 'Assessing the costs and benefits of ethical behaviour is subjective'.Discuss this statement by considering the costs and benefits of ethical and unethical behaviour of accountants.
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