Advanced Financial Accounting Exam Practice Tests
Course Introduction
Advanced Financial Accounting delves into complex aspects of financial reporting, including business combinations, consolidated financial statements, foreign currency transactions, and translation of financial statements for multinational enterprises. The course covers the accounting and reporting requirements for mergers, acquisitions, partnerships, and special entities, with in-depth analysis of relevant accounting standards such as IFRS and GAAP. Students will explore real-world case studies and gain proficiency in applying advanced accounting concepts, ethical considerations, and technical skills required to solve intricate financial reporting challenges faced by global organizations.
Recommended Textbook
Financial Accounting and Reporting A Global Perspective 5th Edition by Herv Stolowy
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Page 2
Chapter 1: Accounting: the Language of Business
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Sample Questions
Q1) Accounting is used to:
A) Record economic variables.
B) Record principally economic variables but can also describe non-financial parameters.
C) Describe non-financial parameters.
D) None of these.
Answer: B
Q2) Financial reporting is accounting for what the 'delegatee' has done with the resources she or he has received from the 'delegator'.
A)True
B)False
Answer: True
Q3) The origins of accounting are often traced to:
A) The Roman Empire.
B) The Byzantine Empire.
C) The Middle Ages.
D) The times of Sumer.
Answer: D
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Chapter 2: Introduction to Financial Statements
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Sample Questions
Q1) Retained earnings represent that part of the firm's value created that:
A) Shareholders have chosen not to take out of the firm.
B) Lenders have chosen not to take out of the firm.
C) Shareholders have chosen to take out of the firm.
D) Lenders have chosen to take out of the firm.
Answer: A
Q2) Current assets are acquired and consumed during the operating cycle or the accounting period.
A)True
B)False
Answer: True
Q3) Which of the following sections form the statement of financial position/balance sheet?
A) Assets,liabilities and profit
B) Assets,liabilities and shareholders' equity
C) Assets and profit
D) Liabilities and profit
Answer: B
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4
Chapter 3: Financial Statements: Interrelations and Construction
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Q1) On a statement of financial position/balance sheet the total of debit balances equals the total of credit balances.
A)True
B)False
Answer: True
Q2) What is the process of transferring entries from the journal to the ledger called?
A) Journalizing
B) Posting
C) Recording
D) Accounting
Answer: B
Q3) What is the trial balance used to verify?
A) Sum of debit entries = Sum of credit entries
B) Sum of debit entries < Sum of credit entries
C) Sum of debit entries > Sum of credit entries
D) None of these.
Answer: A
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Page 5
Chapter 4: Accounting Principles and End-Of-Period Adjustments
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Q1) What effect does the adjusting entry recognizing interest expense have on the basic accounting equation?
A) Increase in assets,increase in liabilities
B) Increase in liabilities,decrease in shareholders' equity
C) Decrease in assets,decrease in liabilities
D) Decrease in liabilities,increase in shareholders' equity
Q2) What are the four critical requirements or constraints which information users place on accounting?
A) Objectivity,Prudence,Accuracy,Periodicity
B) Objectivity,Prudence,Quality of information,Timeliness
C) Subjectivity,Prudence,Quality of information,Periodicity
D) Objectivity,Prudence,Quality of information,Periodicity
Q3) A 'contra asset' account is listed in the balance sheet on the assets side but with a negative (credit)balance.
A)True
B)False
Q4) Financial accounting only records transactions expressed in financial units. A)True B)False
Page 6
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Chapter 5: Regulation of Accounting and Financial Reporting
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Sample Questions
Q1) An annual report includes:
A) A letter to the shareholders
B) A management report
C) Financial statements
D) All of these
Q2) The different formats that exist for the presentation of the statement of financial position/balance sheet do not affect its generic content.
A)True
B)False
Q3) Which of the following is not 'off balance sheet' information?
A) Litigation in which the firm is involved
B) Bank borrowings
C) Hypotheses used in valuing specific assets such as rate of recovery of accounts receivable
D) Hypotheses used in valuing specific liabilities such as provisions for pensions
Q4) The IASB imposes the use of the classification by function.
A)True
B)False
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Chapter 6: Revenue Recognition Issues
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Q1) A change in accounting policy should be made only:
A) If required by tax law.
B) If the change will result in a more appropriate presentation of events or transactions in the financial statements of the entity.
C) If it allows the entity to improve its income.
D) All of these
Q2) According to IAS 18,revenue is 'the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity participants'.(IAS 18)
A)True
B)False
Q3) According to IFRS 15,revenue is 'income arising in the course of an entity's ordinary activities.' Income represents an increase in 'economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity,other than those relating to contributions from equity participants'.(IFRS 15)
A)True
B)False
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Page 8
Chapter 7: Tangible Fixed Assets
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Sample Questions
Q1) Which of the following equations is correct?
A) Gross value at the beginning of the period + Acquisitions of the period - Disposals of the period = Gross value at the end of the period
B) Gross value at the beginning of the period - Acquisitions of the period - Disposals of the period = Gross value at the end of the period
C) Gross value at the beginning of the period + Acquisitions of the period + Disposals of the period = Gross value at the end of the period
D) Gross value at the beginning of the period - Acquisitions of the period + Disposals of the period = Gross value at the end of the period
Q2) How is the depreciation expense calculated using the productive output method?
A) Depreciation expense = (Depreciable amount/Life expressed in units of output)× Units of output for period
B) Depreciation expense = Depreciable amount/Units of output for period
C) Depreciation expense = Depreciable amount × Units of output for period
D) Depreciation expense = Depreciable amount/Life expressed in units of output
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Chapter 8: Intangible Assets
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Q1) The IASB accounting standard currently regulating goodwill accounting is:
A) IAS 22
B) SFAS 142
C) IFRS 3
D) None of these
Q2) 'Purchased goodwill' is:
A) Recognized only in the unconsolidated financial statements.
B) Recognized only in the consolidated financial statements.
C) Recognized both in the unconsolidated and consolidated financial statements.
D) Never recognized.
Q3) The acquisition value of soccer players is always expensed.
A)True
B)False
Q4) What is the duration of the protection offered by a patent?
A) Unlimited.
B) Varies between countries.
C) Lasts generally 10 years.
D) Is generally not defined by law.
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Chapter 9: Inventories
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Sample Questions
Q1) Which of the following statements is correct?
A) The periodic inventory system provides superior managerial information and internal control.
B) The perpetual inventory system is simpler and less expensive than the periodic inventory system.
C) Profit and inventory values are the same under the perpetual inventory system and the periodic inventory system,as long as the basic data do not show any inflation or deflation.
D) The perpetual inventory system is only used in small companies.
Q2) In a perpetual inventory system,the fundamental inventory equation is: Beginning inventory + Purchases or additions - Withdrawals = Ending inventory.What is the unknown in this equation?
A) Beginning inventory
B) Purchases or additions
C) Withdrawals
D) Ending inventory
Q3) The periodic inventory system relies on periodic physical counting.
A)True
B)False
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Page 11
Chapter 10: Financial Instruments in the Statement of
Financial Position and Fair Value Accounting
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Sample Questions
Q1) What is the name of the written document in which a person or business promises to pay a given amount to a third party on a specified date?
A) A draft
B) A promissory note
C) A bill of exchange
D) None of these
Q2) Which of the following items is not a type of accounts receivable reported in the financial statements?
A) Doubtful accounts receivable
B) Disputed accounts receivable
C) Uncollectible accounts receivable
D) Overdue accounts receivable
Q3) Notes can be discounted;the accounts receivable represented by notes are taken out of the assets at the time of discounting.However,this can still represent:
A) A potential gain
B) A latent liability
C) A fictive asset
D) None of these
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Chapter 11: Shareholders Equity
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Sample Questions
Q1) In a sole proprietorship,the single capital provider bears all the risks of the venture and holds claim to a percentage of the future wealth creation of the business.What is this percentage?
A) 10%
B) 25%
C) 50%
D) 100%
Q2) In which of the following ways are dividends allocated?
A) Proportionately to the rights attached to the shares.
B) Discretionally by the board of directors.
C) Uppermost to the most important shareholders.
D) None of these
Q3) What is it called when reserves are incorporated into the share capital?
A) Cancellation
B) Incorporation
C) Capitalization
D) Reservation
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Chapter 12: Liabilities and Provisions
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Q1) If the discount is 'with recourse',the discount mechanism for notes creates:
A) A provision
B) A contingent liability
C) An accrued liability
D) None of these
Q2) Under IAS 17,which of the following examples is not a situation that would normally lead to a lease being classified as a finance lease?
A) The leased assets are useful for the lessee.
B) The lease transfers ownership of the asset to the lessee by the end of the lease term.
C) The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain,at the inception of the lease,that the option will be exercised.
D) The lease term is for the major part of the economic life of the asset even if the title is not transferred.
Q3) In accounting terms,wages and salaries are handled differently.
A)True
B)False
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Chapter 13: Business Combinations
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Q1) In IFRS 10,non-controlling [minority] interests are defined as the equity in a subsidiary not attributable,directly or indirectly,to a parent.
A)True
B)False
Q2) Which of the following statements is not correct?
A) The consolidated income statement is the result of combining mechanically the parent and subsidiary income statements with the elimination of any intra-group transactions.
B) The elimination of intra-group transactions is mathematically automatic since the sales revenue recognized in one of the income statement is part of the costs incurred in the other's income statement.
C) The intra-group transactions affect the income of the consolidated entity.
D) It is critical to explicitly cancel out all intra-group transactions to avoid the risk of biasing operating ratios involving sales revenue and cost of sales separately (by artificially inflating the balances).
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15
Chapter 14: Income Statement Analysis
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Q1) Entity A's proportion of costs that do not vary with volume of sales (depreciation,managers' remunerations,etc. )is larger than that of entity B.Both entities showed a positive income from operations in period X1.If sales revenue for each firm were to increase by the same percentage during X2,which of the four scenarios below would you likely expect to see happen?
A) Entity A's total costs will rise faster rate than those of entity B.
B) Entity A's total costs will rise at a slower rate than those of entity B.
C) Entity A's profit will increase while profit of entity B will stay the same.
D) Entity A's profit will decrease faster than that of entity B will increase
Q2) Which of the following statements is not correct?
A) The common-size analysis permits the analyst to compare and contrast the financial statements of two and more companies in the same industrial sector or risk class more easily.
B) The common-size analysis reduces the problem of the size difference between companies.
C) The common-size analysis helps the analyst formulate hypotheses about the most efficient business model between the firms compared,and identify possible thresholds in economies of scale.
D) The common-size analysis allows only comparison over one year.
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Page 16
Chapter 15: Balance Sheet Analysis
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Sample Questions
Q1) How does one describe the way a business financed its resources?
A) By measuring its financial leverage
B) By measuring its return on capital employed
C) By measuring its financial structure
D) By calculating the net present value of future cash flows
Q2) Balmer Company sells manufactured products for a price of 10 CU per unit.The credit terms received from suppliers of materials are 90 days.It grants credit to its customers for 10 days.Its inventory of finished products turnover is 24;its raw material inventory turnover is 48.Its transformation process takes a day.Its manufacturing value added to raw materials purchased is 10%.Its gross margin is 20%.Its net margin before tax is 5%.All costs other than materials are paid cash.The working capital need required to sell one unit is likely to be:
A) - 341.50
B) - 364.00
C) - 405.36
D) - 369.60
Q3) A positive working capital need is typical of a firm operating in the distribution sector.
A)True
B)False
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Chapter 16: Statement of Cash Flows Construction
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Sample Questions
Q1) Past cash flows aid users of the financial statements in:
A) Predicting future cash flows.
B) Evaluating the way management generates and uses cash.
C) Determining a company's ability to pay interest and dividends and to pay debts when they are due.
D) All of these.
Q2) Activities that involve obtaining resources as a borrower or issuer of shares and repaying creditors and shareholders are included in which section of the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Managing activities
Q3) The cash flows from operating activities are different under the direct method and the indirect method.
A)True
B)False
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18
Chapter 17: Statement of Cash Flows Analysis and Earnings
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Q1) The way IFRS GAAP demand that financial leases be reported encourages firms to:
A) Choose financial leases over outright acquisition in obtaining control over fixed resources to help increase the cash flow from operations.
B) Choose outright acquisition over financial leases in obtaining control over fixed resources to help reduce the cash outflow from investing.
C) Choose financial leases over outright acquisition in obtaining control over fixed resources to help hide the liability that reflects their commitment to owing the periodic lease payment for the duration of the contract.
D) Choose strategically between a financial lease and outright acquisition in order to obtain control over fixed resources since the rules neutralize the impact of the choice on the reported earnings.
Q2) The primary impact of the timing difference between the recognition of 'revenue from sales' and the 'cash collected for customers' is on the level of:
A) Net profit
B) Gross margin
C) Allowance for bad receivables
D) Accounts receivables balance
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Page 19
Chapter 18: Ratio Analysis, financial Analysis and Beyond
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Sample Questions
Q1) Segment reporting consists in:
A) Breaking down the earnings of the firm into the various functional components of its generation process.
B) Breaking down the earnings of a firm into the elements traceable to identifiable components of the business entity defined around markets,technologies or regions.
C) Reporting the three consolidated financial statements of a group plus,separately,those of each of its key subsidiaries.
D) Reporting the accrual-based earnings and the cash flows by structuring them by term.
Q2) All things being otherwise equal,when a business entity is created,choosing a significantly higher financial leverage ratio (than the rule of the three thirds would command)will generally lead to (compared to a lower leverage ratio):
A) Larger earnings and larger earnings per share
B) Lower earnings and higher ROE
C) Higher earnings and lower ROE
D) Lower earnings and lower earnings per share
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