Advanced Financial Accounting
Exam Materials
Course Introduction
Advanced Financial Accounting delves into the complex frameworks governing corporate financial reporting, with a particular focus on the accounting standards and practices related to consolidated financial statements, business combinations, foreign currency transactions, and investments in other entities. The course covers topics such as mergers and acquisitions, partnerships, international accounting issues, segment reporting, and the financial reporting implications of various financial instruments. Students will engage with real-world case studies and exercises to develop a deeper understanding of how advanced accounting principles are applied in practice, preparing them for the challenges of reporting and analyzing intricate financial arrangements in a global business environment.
Recommended Textbook
Intermediate Accounting Volume 1 3rd Edition by Kin Lo
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Chapter 1: Fundamentals of Financial Accounting Theory
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Sample Questions
Q1) Explain the process an accountant uses to determine the appropriate accounting method for a business transaction.
Answer: As GAAP refers to broad principles,not specific rules,accounting involves exercising professional judgment to determine the appropriate accounting.Judgment is exercised by: considering the range of possible methods of accounting; evaluating whether and how the particular method of accounting is consistent with the conceptual framework underlying GAAP; appreciation for the underlying economic forces at work and ensuring that the accounting appropriately reflects the substance of the transaction.
Q2) Explain how earnings management may arise.
Answer: Insiders have many incentives to manage earnings: to influence share price,to lower the cost of financing,to meet contractual and regulatory requirements,to increase management compensation,to lower political costs,to gain regulatory protection.Most often,the incentives lead to an upward bias in earnings and net assets,but sometimes the incentives lead to a downward bias.
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Chapter 2: Conceptual Frameworks for Financial Reporting
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Sample Questions
Q1) Which statement is correct?
A)Private enterprises may follow IFRS.
B)Not-for-profit organizations must follow ASPE.
C)Publicly accountable enterprises may follow ASPE.
D)Private enterprises must follow ASPE.
Answer: A
Q2) Which statement best explains the meaning of "recognition" in financial reporting?
A)Determining where items should be presented in the body of the financial statements.
B)Presenting an item in the financial statements,rather than simply disclosing in the notes.
C)Quantifying items so that they can be presented in the body of the financial statements.
D)Presenting expenses in the same accounting period as the related revenues. Answer: B
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4
Chapter 3: Accrual Accounting
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Sample Questions
Q1) What is classified as a "non-current" liability?
A)An obligation expected to be settled within the ordinary operating cycle of the business.
B)An obligation where the company has breached its covenants.
C)Both A and B are non-current liabilities.
D)Both A and B are current liabilities.
Answer: D
Q2) Assume that a company has a calendar year of January 1,2018-December 31,2018.March 15,2019 was the end of the period for gathering information pertaining to the financial statements.The financial statements were authorized for issue on March 24,2019.
What is the cut off point for the "recognition" of transactions and events in a reporting period?
A)January 1,2018.
B)March 15,2019.
C)March 24,2019.
D)December 31,2018.
Answer: D
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Chapter 4: Revenue and Recognition
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Sample Questions
Q1) YMN had sales of $1,500,000,including:
$25,000 of goods shipped on consignment to an unrelated company on December 28,2018 and received by that company on December 31,2018
$20,000 of goods shipped F.O.B.shipping point to a different unrelated party on December 31,2018 and received on January 2,2019.
On its income statement,what amount of net sales should YMN record for 2018?
A)$1,455,000
B)$1,475,000
C)$1,525,000
D)$1,545,000
Q2) In July,Telly-Rental sells a home theatre for $1,000 on an installment basis.The cost of goods sold is $400.How much deferred gross profit is recorded by Telly-Rental in July?
A)$0
B)$400
C)$600
D)$1,000
Q3) Explain why accounting standards generally prescribe a smaller set of alternatives for revenue recognition.
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Chapter 5: Cash and Receivables
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Q1) Medical Machines reported credit sales of $800,000,cash returns of $25,000 and bad debt expense of $150,000 for last year.Accounts receivable had a balance of $1,000,000 at the beginning of the year and $1,250,000 at the end of the year.Assuming there are no write-offs during the year,how much cash was collected from customers during the year?
A)$375,000
B)$525,000
C)$550,000
D)$650,000
Q2) Explain two problems associated with the direct write-off method.
Q3) Spiders Geophysics issues an invoice to Huslia Goldmines for $150,000 on August 5,2018.The invoice states the payment terms are 5/10,net 30.Huslia pays the invoice on August 14,2018.How should Spiders record the invoice and its subsequent collection if it uses (a)the gross method or (b)the net method?
Q4) Explain why the definition of cash and cash equivalents is important for the financial statements.How would a transfer from one bank account to another be reported in the cash flow statement?
Q5) Explain what is meant by "channel stuffing" and how this can be used to manipulate earnings.
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Chapter 6: Inventories
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Sample Questions
Q1) Which statement best explains the LIFO cost flow assumption?
A)A method that uses the most recent costs in the calculation of cost of sales.
B)A method that uses the cost of goods available for sale divided by the number of units available for sale.
C)A method that assigns costs to inventories and cost of sales based on actual costs of each item.
D)A method that uses the oldest costs in the calculation of cost of sales.
Q2) Which statement is correct about overhead?
A)Fixed overhead is expensed under absorption costing.
B)Fixed overhead is never capitalized.
C)Variable overhead is always capitalized.
D)Fixed overhead is capitalized under absorption costing.
Q3) Assume that ending inventory in fiscal 2016 is overstated by $1,000.What impact will this have on fiscal 2016 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Inventory is understated on the balance sheet.
Q4) Explain why the absorption costing method is appropriate under GAAP.
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Chapter 7: Financial Assets
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Sample Questions
Q1) Which statement about investments is not correct?
A)An at fair value through profit or loss investment is a non-strategic investment.
B)An investment in an associate is a strategic investment.
C)An at fair value through OCI investment is a strategic investment.
D)An investment for which the business model is to collect the contractual cash flows of principal and interest is a non-strategic investment.
Q2) Which statement is not correct about "associates"?
A)Holding 18% of the voting power of the investee may mean significant influence exists.
B)The ability to exercise significant influence over the investee mitigates moral hazard.
C)The ability to exercise significant influence over the investee mitigates adverse selection.
D)Significant influence is presumed if 51% of the voting power of the investee is held.
Q3) Describe the single most important characteristic of a financial asset that distinguishes it from a real asset.
Q4) Explain the meaning of the "effective interest method."
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Chapter 8: Property, plant and Equipment
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Sample Questions
Q1) Every three years a major component (part #45)in a machine must be replaced.By doing this regular but expensive repair the machine can be used for 15 years.If Part #45 were not replaced,the machine could be used only for a maximum of six years.When the machine was originally purchased for $5,000,000 it was set up as two components: the machine was depreciated over its estimated useful life of 15 years and Part #45 was recognized as a separate PPE asset and depreciated over three years. Recently this repair was completed at a cost of $700,000 for Part #45.The earlier Part #45 cost $550,000 when it was installed three years ago.Neither the old nor the new Part #45 has any residual value.
Prepare the necessary journal entries to record the transaction.Provide a short justification for your chosen treatment.
Q2) Which of the following is not a characteristic of a property,plant and equipment (PPE)?
A)No physical substance.
B)Identifiable.
C)Non-monetary.
D)Provides future cash flows.
Q3) Explain derecognition of property,plant or equipment.
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Chapter 9: Intangible Assets, goodwill, mineral Resources, and Government Grants
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Sample Questions
Q1) What are the unique features that lead to the differing accounting treatment between research and development costs?
Q2) Which of the following is correct with respect to the accounting for re-payment of government grants?
A)Accounted for prospectively under IFRS.
B)Accounted for retrospectively under ASPE.
C)Accounted for prospectively under ASPE
D)Accounted for retrospectively under IFRS.
Q3) What factor will not affect the estimated useful life of a finite lived intangible asset?
A)Legal life of the asset.
B)Technological obsolescence.
C)Physical condition of the asset.
D)Certainty of future cash flows.
Q4) What is the appropriate treatment for re-payment of government grants under ASPE?
A)Accounted for prospectively.
B)Accounted for retrospectively.
C)Partial prospective treatment and partial retrospective treatment.
D)Full prospective treatment and full retrospective treatment.
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Chapter 10: Applications of Fair Value to Non-Current Assets
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Sample Questions
Q1) Which is not a source of information that would be used as an indicator of impairment?
A)Adverse changes in the technological competitive or legal environment of the entity.
B)Market value of asset has increased more than would be expected from normal aging.
C)Market value of asset has decreased more than would be expected from normal aging.
D)The market value of the entity as a whole is less than the carrying value of its net assets.
Q2) Explain the accounting under the revaluation model available under IFRS.
Q3) Which of the following is correct with respect to the "reversal of impairment loss"?
A)It is defined as the carrying amount less recoverable amount under IFRS.
B)It is defined as the carrying amount less fair value under ASPE.
C)It is possible under IFRS if the recoverable amount subsequently rises.
D)It is possible under ASPE if the recoverable amount subsequently rises.
Q4) Explain why non-current assets held for sale are recorded at the lower of carrying value and fair value less costs to sell.
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