Advanced Financial Accounting
Exam Solutions
Course Introduction
Advanced Financial Accounting builds upon foundational accounting principles to explore complex financial reporting topics and the application of accounting standards to business combinations, consolidated financial statements, foreign currency transactions, and multinational operations. This course delves into specialized areas such as partnerships, segment and interim reporting, and issues related to non-profit and governmental accounting. Students engage with contemporary issues, analyze the impacts of regulatory frameworks, and interpret financial disclosures for complex organizational structures. Through case studies and problem-solving exercises, learners develop critical skills for advanced accounting analysis and decision-making in a global context.
Recommended Textbook
Australian Financial Accounting 6e by Craig Deegan
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Page 2
Chapter 1: An Overview of the Australian External Reporting Environment
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Q1) The financial statements and supporting notes included in an annual report presented to shareholders at a company's annual general meeting is an example of a general-purpose report:
A)True
B)False
Answer: True
Q2) The role of the Financial Reporting Council is to provide broad oversight of the process for setting standards in Australia,including the authority to direct the AASB to develop,amend or revoke a particular standard:
A)True
B)False
Answer: False
Q3) Some of the costs of international convergence of accounting standards include:
A) Costs of educating accountants to adopt a new set of standards.
B) Costs associated with changing data collection systems.
C) Costs associated with changing data reporting systems.
D) All of the given answers.
E) None of the given answers.
Answer: D
Page 3
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance to Financ
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Q1) James Cook Ltd bought a piece of land 10 years ago and the market value of this property is now worth 5 times its purchase cost.The accountant suggested that James Cook Ltd should revalue the asset.This notion is consistent with the qualitative characteristic of:
A)relevance.
B)reliability.
C)understandability.
D)comparability.
E)materiality.
Answer: A
Q2) The trade-off between relevance and reliability requires exercise of judgment constrained by timeliness and costs versus benefits.
A)True
B)False
Answer: True
Q3) The AASB Framework has the force of law:
A)True
B)False
Answer: False
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Chapter 3: Theories of Financial Accounting
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Q1) In the situation where a contractual arrangement has been negotiated that provides managers with a bonus based on the profits generated by the entity:
A) The efficiency perspective identifies this as a way of minimising agency costs by aligning the interests of the principal and the agent.
B) The opportunistic perspective predicts that managers will seek to adopt accounting methods that best reflect the performance of the organisation.
C) The underlying premise of PAT is that agents (managers) aim to act in the best interests of the organisation, so the bonus is recognition of those efforts.
D) Both the efficiency perspective identifies this as a way of minimising agency costs by aligning the interests of the principal and the agent and the opportunistic perspective predicts that managers will seek to adopt accounting methods that best reflect the performance of the organisation.
E) None of the given Answers.
Answer: A
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Chapter 4: An Overview of Accounting for Assets
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Q1) If the expected value in use of an asset is more than its market value,then it is expected that the entity will retain the asset:
A)True
B)False
Q2) AASB 108"Accounting policies,changes in accounting estimates and errors" requires material prior period errors to be corrected retrospectively,in the period when the error was discovered.
A)True
B)False
Q3) For an asset to be recognised it is essential that it be acquired by purchase or exchange of another asset:
A)True
B)False
Q4) AASB 101 "Presentation of Financial Statements" requires all current and non-current assets to be presented in the balance sheet in the order of maturity.
A)True
B)False
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6
Chapter 5: Depreciation of Property, plant and Equipment
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Q1) Galway Ltd purchased a computer for $6,000 2 years ago.At the beginning of this year the motherboard was replaced to maintain its existing service capacity at a cost of $2,000.The improvement to the computer will work only on the existing computer and it does not extend its useful service potential.Galway has been depreciating the equipment using the declining-balance method at a rate of 33 per cent.What is the depreciation charge calculated at the end of the current year (rounded to the nearest dollar)?
A) $1,778
B) $1,549
C) $2,640
D) $889
E) None of the given answers.
Q2) Depreciation of an asset is required when market value accounting is applied on a non-current asset.
A)True
B)False
Q3) Land that has a definite useful life should be depreciated.
A)True
B)False
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Page 7
Chapter 6: Revaluation and Impairment Testing of
Non-Current Assets
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Q1) Brahms Ltd acquired a property of land and building for $1.5 million.Management estimates the value of land to be 40% of cost.The building is estimated to have a useful life of 50 years.After 25 years,the property was revalued at 1.2 million.It is expected that the life of building will remain the same and salvage value is expected to be $100,000.What is the revaluation gain(loss)for building and the depreciation expense one year after revaluation?
A) $120,000; $24,800
B) ($120,000); $28,800
C) $220,000; $24,800
D) ($220,000); $28,800
E) None of the given answers
Q2) Which of the following statement is true of accumulated depreciation?
A) This is the difference between acquisition costs and residual value.
B) This is the difference between acquisition costs and revalued amount.
C) It is initially derecognized on first time revaluations.
D) It is restated proportionately to the carrying amount and the revalued amount of the asset.
E) None of the given answers
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Chapter 7: Inventory
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Q1) AASB 102 requires that fixed manufacturing costs be excluded from the cost of inventories,as they cannot be allocated accurately:
A)True
B)False
Q2) AASB 102 "Inventories" applies to biological assets related to agricultural activity.
A)True
B)False
Q3) The first-in,first-out (FIFO)method assumes that items remaining in inventory at the end of the period are those most recently purchased or produced.
A)True
B)False
Q4) Upward revaluation of inventory is permitted for as long as all assets in same inventory class are revalued.
A)True
B)False
Q5) Some biological assets may be covered by AASB 102 "Inventories":
A)True
B)False
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Chapter 8: Accounting for Intangibles
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Q1) There are only rare occasions when an identifiable intangible asset should be amortised.
A)True
B)False
Q2) Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136 "Impairment of Assets"?
A) Goodwill may be amortised when it has a finite life.
B) Goodwill is subjected to impairment testing every three years.
C) Upward revaluation of goodwill is permitted as long as it is a reversal of prior years' impairment losses.
D) All of the given answers.
E) None of the given answers.
Q3) Which of the following expenses are likely to satisfy the definition of an asset,and hence may be capitalised as an intangible asset?
A) Expenses incurred to develop a brand name;
B) Advertising expenses
C) Research expenses
D) None of the given answers.
E) All of the given answers.
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Page 10
Chapter 9: Accounting for Heritage Assets and Biological Assets
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Q1) AAS 29 states that the measurement basis of infrastructure and heritage assets should be:
A) Depreciated historical cost.
B) Written current cost.
C) Depreciated fair value.
D) Recoverable amount.
E) None of the given answers.
Q2) Which of the following items are not within the scope of AASB 141 "Agriculture"?
A) Apple trees in a commercial orchard
B) Dried apples sold in supermarkets
C) Pine trees in a plantation forest
D) Harvested apples
E) All of the given answers
Q3) The requirements of AAS 29 are out of line with one of the views outlined in the International Accord on the Value of Natural Science Collections:
A)True
B)False
Q4) Biological assets are defined in AASB 141 as 'living animal or plant':
A)True
B)False
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Chapter 10: An Overview of Accounting for Liabilities
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Q1) Examples of contingent liabilities include:
A) Future payments arising under employee entitlements for long service leave.
B) Past tax deductions claimed that are under review by the Australian Taxation Office, but which the entity intends to dispute if disallowed.
C) Out of court settlements in the case of liability for damage to health due to products manufactured by the entity.
D) Past tax deductions claimed that are under review by the Australian Taxation Office, but which the entity intends to dispute if disallowed and out of court settlements in the case of liability for damage to health due to products manufactured by the entity
E) All of the given answers.
Q2) In a constructive obligation where the entity retains discretion to avoid any future sacrifice of economic benefits,no liability should be recognised in the financial statements.
A)True
B)False
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Chapter 11: Accounting for Lease
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Q1) In circumstances where the lessee is unable to determine the implicit interest rate in a lease agreement,AASB 117 requires the lessee to use.
A) The incremental lending rate of the lessor.
B) The weighted average cost of capital of the lessee.
C) The incremental borrowing rate of the lessee.
D) The internal rate of return on similar projects adopted by the lessor.
E) None of the given answers.
Q2) Snowy River Ltd is a lessee to two lease arrangements.Lease A is non-cancellable,contains a bargain purchase option and the lease term is equal to 75 per cent of the economic life of the asset.Lease B is non-cancellable,lease term is less than 60% of the economic life of the asset and the minimum lease payment represents 75% of the fair value of the leased asset. How should Snowy River Ltd classify Lease A and Lease B,respectively?
A) Operating lease; Operating lease;
B) Operating lease; Finance lease
C) Finance lease; Finance lease; D) Finance lease; Operating lease;
E) None of the given answers.
Q3) Describe how a lessee would account for the amortisation of a leased asset.
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Page 13
Chapter 12: Set-Off and Extinguishment of Debt
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Q1) If the conditions for set off were initially met,and in a later period cease to be met,the debt remaining is to be:
A) Reinstated in the balance sheet.
B) Grossed up to the original amounts, and reported in the balance sheet pre-tax.
C) Written off immediately as an expense in the income statement.
D) Subject to ongoing review by the firm.
E) Transferred to the Australian Taxation Office, who will determine the fate of the debt.
Q2) When a debt is forgiven the accounting treatment is to:
A) Debit the liability; credit a deferred benefit account.
B) Credit a gain on release account; debit the liability.
C) Debit the gain on release account; credit the liability.
D) Debit a deferred benefit account; credit a debt defeasance account.
E) None of the given answers.
Q3) Release from the primary obligation for a debt may be achieved by replacement by another debt:
A)True
B)False
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Chapter 13: Accounting for Employee Benefits
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Q1) Sick leave may be classified as:
A) Cumulative vesting.
B) Non-cumulative non-vesting.
C) Cumulative non-vesting.
D) Non-cumulative vesting.
E) All of the given answers.
Q2) The creation of cash reserves through accounting provisions ensures employees can be paid their entitlements as they fall due:
A)True
B)False
Q3) Long service leave must be accrued and a liability recorded from the first day of employment:
A)True
B)False
Q4) In a long service leave liability to an employee,a conditional period refers to the period where no legal entitlement to any cash payment or leave exists.
A)True
B)False
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Chapter 14: Share Capital and Reserves
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Q1) An allotment account,being a receivable account from the subscribers in a share issue,is presented under current assets in the statement of financial position.
A)True
B)False
Q2) The Corporations Act 2001 requires that where a company redeems preference shares it must do so out of profits that would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purpose of the redemption:
A)True
B)False
Q3) Share capital:
A) Relates to one class of shares, with the remaining equity recorded as reserves or retained profits.
B) Represents the amount shareholders are guaranteed to receive if the company is wound up.
C) May relate to one or several classes of shares.
D) May be calculated by subtracting liabilities from assets.
E) None of the given answers.
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Chapter 15: Accounting for Financial Instruments
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Q1) Which of the following statements is true?
The initial measurement of financial assets is to be at fair value
The initial measurement of financial liabilities is to be at present value
The initial measurement of financial liabilities is to be at fair value
The subsequent measurement of financial assets and financial liabilities will be at fair value
The subsequent measurement of financial assets and financial liabilities will be dependent upon the category to which the financial instrument belongs
A. I, II and V
B. I, II and IV
C. I, III and IV
D. III and IV
E. I, III and V.
A)True
B)False
Q2) The most commonly issued equity instrument would be a redeemable preference share:
A)True
B)False
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Page 17
Chapter 16: Revenue Recognition Issues
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Q1) Construction costs plus gross profit earned to date from a construction contract are accumulated in the construction in progress account less progress billings and these are disclosed in the liability section of the statement of financial position.
A)True
B)False
Q2) Under the AASB Framework income is now subdivided into:
A) Revenues, which only include sales, fees, interest, dividends, royalties and rent; Gains, which are no different in nature to revenue.
B) Gains, which are regarded as constituting a separate element in the Framework; Revenues, which may only arise in the course of the ordinary activities of the entity.
C) Revenues, which arise in the course of the ordinary activities of the entity; Gains, which may or may not arise in the course of the ordinary activities of the entity.
D) Increases in equity referred to as Gains; reductions in liabilities which are classified as Revenues.
E) None of the given answers.
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18
Chapter 17: The Statement of Comprehensive Income and Statement of Changes in E
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Q1) The problem with a "blanket rule" requiring all expenditure of a particular type to be written off as incurred (e.g.,expenditure on research),is:
A) that it is too much like US GAAP.
B) it does not enable readers of financial reports to differentiate between entities that have generated future economic benefits from particular activities and those who have not.
C) it does not enable readers of financial reports to differentiate between entities that have managed their earnings and those who have not.
D) it does not enable readers of financial reports to differentiate between entities that are going to continue to be successful and those who are not.
E) it does not enable readers of financial reports to make their own judgements about the future worth of the entity.
Q2) AASB 101 permits an entity to present all items of income and expense recognised in a period to be presented in either the statement of comprehensive income or the income statement.
A)True
B)False
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Page 19
Chapter 18: Accounting for Share-Based Payments
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Q1) When good or services are acquired in a share-based payment transaction and it does qualify as an asset,the transaction must be expensed.
A)True
B)False
Q2) On 1 July 2009 Lancashire Ltd grants 100 share options to each of its 50 employees conditional upon the employee working for the entity for the next three years.On the same date,the entity estimates the fair value of each share option at $15.Based on probability estimates,15 employees are expected to leave the entity in one year and another 5 employees in two years.Actual resignation for the year ending 2010 was 12 employees and the fair value of the option is $12 on 30 June 2011. In accordance with AASB 2,what is the cumulative remuneration expense (related to the share option issue)as at 30 June 2011?
A) $24,000
B) $26,400
C) $33,000
D) $45,000
E) $75,000
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Page 20
Chapter 19: Accounting for Income Taxes
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Q1) The transfer of tax losses to other entities within a group:
A) Is no longer permitted in Australia under the new tax consolidation regime.
B) Is not addressed in AASB 112.
C) Can only be performed by entities within a tax consolidated group.
D) Is not addressed in AASB 112 and can only be performed by entities within a tax consolidated group.
E) None of the given answers.
Q2) Raging Dragons Ltd has a depreciable asset that is estimated for accounting purposes to have a useful life of 15 years.For taxation purposes the useful life is 10 years.The asset was purchased at the beginning of year 1,there is no residual value,and the straight-line method of depreciation is used for both tax and accounting purposes.The tax rate is 30 per cent and the cost of the asset is $150,000.What adjustment will be required to the deferred tax liability account in years 10 and 11?
A) End of year 10: $1,500; Year 11: $1,500
B) End of year 10: $5,000; Year 11: $(10,000)
C) End of year 10: $1,500; Year 11: $(3,000)
D) End of year 10: $15,000; Year 11: $(3,000)
E) None of the given answers.
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Page 21
Chapter 20: Cash-Flow Statements
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Q1) While the statement of cash flows is presently required along with the accrual statements,taking a balanced view,it would be sufficient to meet the accountability needs of general-purpose financial statement users on its own:
A)True
B)False
Q2) Which of the following statements is correct in accordance with AASB 107 "Cash Flow Statements"??
A) Cash repayments of amounts borrowed are classified under financing activities.
B) Cash proceeds from issuing equity instruments are classified under financing activities.
C) Cash payments to acquire property, plant and equipment are classified under investing activities.
D) Cash advances and loans made to other parties are classified under investing activities.
E) Conversion from debt to equity is classified under operating activities.
Q3) AASB 107 requires disclosures about non-cash financing and investing activities: A)True
B)False
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22
Chapter 21: Accounting for the Extractive Industries
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Q1) Which of the following activities is within the scope of AASB 6 "Exploration for and Evaluation of Mineral Resources"?
A) Expenditures incurred before the exploration for and evaluation of mineral resources, such as expenditures incurred before the entity has obtained the legal rights to explore a specific area;
B) Expenditures incurred after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable;
C) Expenditures incurred after the exploration for and evaluation of mineral resources, such as expenditures incurred for the establishment of access to the deposit or field;
D) Expenditures incurred in the determination of the technical feasibility and commercial viability of a particular prospect, such as determining the volume and grade of the deposit or field;
E) None of the given answers.
Q2) AASB 6 effectively permits entities to choose between the full-cost method and the area-of-interest method.
A)True
B)False
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23
Chapter 22: Accounting for General Insurance Contracts
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Q1) The new version of AASB 1023 has gone some way to reducing the volatility in earnings but:
A) Some volatility will remain with the required application of AASB 140.
B) This volatility will be completely removed when the IASB complete their Insurance Project.
C) The introduction of the requirement to apply AASB 139 will introduce further volatility to the accounts.
D) Some volatility will remain with the required application of AASB 140 and the introduction of the requirement to apply AASB 139 will introduce further volatility to the accounts.
E) None of the given answers.
Q2) Property,plant and equipment that is within the scope of AASB 116 and backs general insurance liabilities,should be measured at:
A) Depreciated historical cost.
B) Net replacement cost.
C) Recoverable amount.
D) Net present value.
E) None of the given answers.
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24
Chapter 23: Accounting for Superannuation Plans
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Q1) Accounting Standards regulate the provision of reports by superannuation plans,including information on the performance and position of the plan and individual members' contributions and entitlements:
A)True
B)False
Q2) AAS 25 "Financial Reporting by Superannuation Plans" deals with accounting in an employer's financial reports for employee entitlements,including retirement benefits.
A)True
B)False
Q3) According to AAS 25,the revenue of a superannuation fund should include the changes in net market value of all plan assets over the period.
A)True
B)False
Q4) The maximum period a defined benefit plan can have between detailed actuarial reviews of the accrued benefits is 2 years:
A)True
B)False
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25
Chapter 24: Events Occurring After Balance Sheet Date
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Q1) AASB 110 specifies that adjusting events should be considered against two criteria to determine their treatment.The two criteria are:
A) (a) provides an indication that conditions may have existed at balance sheet date; or (b) reveals additional solid evidence of a condition that existed at balance sheet date.
B) (a) provides additional evidence of conditions that existed at the date the audit report was signed; or (b) reveals for the first time a condition that existed at date of completion.
C) (a) provides an indication that conditions may have existed at date of completion; or (b) reveals additional solid evidence of a condition that existed at date of completion.
D) (a) provides additional evidence of conditions that existed at reporting date; or (b) reveals for the first time a condition that existed at reporting date.
E) None of the given answers.
Q2) The Directors' Declaration includes a statement that the entity can pay its debts as they fall due:
A)True
B)False
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Chapter 25: Segment Reporting
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Q1) Segment information may be useful to investors who wish to use ethical guidelines about which industries or countries they invest in:
A)True
B)False
Q2) Which operating segments are considered to be reportable under AASB 8 using the segment revenue qualitative threshold?
A) All segments are reportable.
B) Retail and agriculture.
C) Retail, agriculture and brewing
D) Retail, agriculture and chemicals
E) None of the given answers
Q3) Which operating segments are considered to be reportable under AASB 8 using the segment asset qualitative threshold?
A) All segments are reportable.
B) Retail and agriculture.
C) Retail, agriculture and brewing
D) Retail, agriculture and chemicals
E) None of the given answers
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Chapter 26: Related-Party Disclosures
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Q1) Transactions between the reporting entity and its directors are considered.
A) Not prone to the risks associated with related-party transactions because directors have a self-interested motivation to put the interests of the entity first.
B) Unlikely to be material in size in relation to most listed companies and therefore not normally required to be reported.
C) To all be related-party transactions and material regardless of their size.
D) Prone to the same risks for reporting and other entities as all related-party transactions, and therefore treated the same way.
E) None of the given answers.
Q2) Disclosure information under AASB 124 is aggregated by:
A) Forex currency base, size of the transaction and class of related party.
B) Size of the transaction, type of transaction and frequency of the transaction.
C) Type of transaction, nature of terms and conditions, and class of related party.
D) Nature of terms and conditions, class of related party, and frequency of the transaction.
E) None of the given answers.
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Chapter 27: Earnings Per Share
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Q1) Dormant Ltd has a net income after tax of $2,540,000 for the year ended 30 June 2005.At the beginning of the period Dormant Ltd had 3,000,000 fully paid-up ordinary shares on issue.On 1 November 2004 Dormant Ltd makes a rights issue of 1 fully paid share for every 6 shares held.The required payment for the rights issue shares was $2.00.The last cum rights price was $3.00.What are the basic earnings per share for the period ended 30 June 2005 in accordance with AASB 133?
A) $0.73
B) $0.75
C) $0.76
D) $0.78
E) None of the given answers.
Q2) In relation to Option 1 issued on 1 July 2006,how many shares are deemed to be issued for no consideration?
A) Nil
B) 18,750
C) 22,388
D) 100,000
E) None of the given answers.
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Page 29
Chapter 28: Accounting for Group Structures
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Q1) Sullivan (1985)argued that the preparation of group accounts can proceed to the fulfilment of the true and fair notion only when partitioning is fully enforced.
A)True
B)False
Q2) On consolidation,the investment in subsidiary,shown in the investor's books,shall be eliminated in full against which of the following?
A) Assets and liabilities of the subsidiary.
B) Post-acquisition shareholders' funds of the subsidiary.
C) Share capital of the subsidiary acquired by the parent only.
D) Goodwill amount created on acquisition.
E) None of the given answers.
Q3) It is possible for one entity to control another entity under the AASB 3 definition without the controlling entity having any equity-ownership interest in the other entity: A)True B)False
Q4) A subsidiary is an entity that is controlled by a parent entity: A)True
B)False
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Chapter 29: Further Consolidation Issues I: Accounting for
Intragroup Transact
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Q1) The value of inventory on hand for the economic group at the end of the period will always equal the sum of the inventory on hand at the end of the period for each of the entities in the group:
A)True
B)False
Q2) Intragroup profits are eliminated in consolidation to exclude intragroup transactions in the parent entity's financial statements.
A)True
B)False
Q3) If we simply aggregate the sales of the parent and subsidiary companies,without adjustment,when there have been intragroup sales,total income would be overstateD. A)True
B)False
Q4) The level of equity ownership is not a factor in deciding what proportion of a transaction between entities in a group should be eliminated.
A)True B)False
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Chapter 30: Further Consolidation Issues II: Accounting for Minority Interests
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Q1) Calculating the minority interest (MI)in the operating profit and opening retained earnings of a subsidiary is done by:
A) Taking the operating profit and opening retained earnings figures of the subsidiary and multiplying them by the percentage ownership held by the MI.
B) Adjusting the operating profit and opening retained earnings of the subsidiary for any intragroup transactions and multiplying them by the percentage ownership held by the MI.
C) Adjusting the operating profit of the subsidiary for any unrealised profit or expense of the subsidiary as a result of any intragroup transactions and multiplying both this and the opening retained earnings by the percentage ownership held by the MI.
D) Adjusting the opening retained earnings and the operating profit for any unrealised profit or expense of the subsidiary as a result of intragroup transactions and multiplying this by the percentage ownership held by the MI.
E) None of the given answers.
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Chapter 31: Further Consolidation Issues III: Accounting for
Indirect Ownershi
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Q1) A Ltd owns 60 per cent of the issued capital of B Ltd,B Ltd owns 80 per cent of the issued capital of C Ltd,and B Ltd owns 70 per cent of the issued capital of D Ltd.The ultimate parent entity is B Ltd.
A)True B)False
Q2) In calculating indirect minority interests,intragroup transactions need not be eliminated.
A)True B)False
Q3) A Ltd owns 80 per cent of the issued capital of B Ltd,B Ltd owns 70 per cent of the issued capital of C Ltd,and B Ltd owns 50 per cent of the issued capital of D Ltd.The only entity that is not an immediate parent entity is D Ltd. A)True B)False
Q4) Non-sequential acquisition is when a parent acquires its interest in the intermediate subsidiary after the intermediate subsidiary acquires its interest in the other subsidiary. A)True B)False
Page 33
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Chapter 32: Further Consolidation Issues Iv: Accounting for
Changes in the Deg
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Q1) Which of the following is not a reason for a parent to lose control of a subsidiary?
A) Where the subsidiary issues additional shares to parties other than the parent
B) Where the subsidiary issues bonus shares on a pro-rata basis.
C) When the parent makes a decision to sell its controlling interest in the subsidiary to another party.
D) Where the subsidiary issues additional shares to parties other than the parent.
E) The subsidiary becoming subject to the control of a government regulator.
Q2) Where a parent entity with a controlling interest in a subsidiary obtains additional equity,the carrying amounts of the controlling and non-controlling interests should be adjusted to reflect the changes in their relative interests in the subsidiary.Any difference between the fair value paid and the carrying amount of the additional interest acquired is recognised directly in profit or loss of the parent entity.
A)True
B)False
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Chapter 33: Accounting for Equity Investments
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Q1) If an associate uses accounting policies other than those of the investor for like transactions and events in similar circumstances,adjustments shall be made to conform the investor's accounting policies to those of the associate's financial statements before applying the equity method.
A)True
B)False
Q2) Where an entity holds a controlling equity interest in another entity it may choose to account for that interest using the equity method of accounting:
A)True
B)False
Q3) Derivative instruments are instruments that:
A) derive their value from stock exchanges and futures markets.
B) derive their value from some other underlying expenditure.
C) derive their value from some other underlying derivative.
D) derive their value from some other underlying assets.
E) None of the given answers.
Q4) An associate is an investee over which the investor has control:
A)True
B)False
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Chapter 33: Accounting for Equity Investments
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Q1) According to AASB 131,for a jointly controlled operation:
A) each venturer uses its own property, plant and equipment, and carries its own inventory, and incurs its own expenses. However liabilities are incurred in, and finance is raised in, the name of the joint venture, as these represent the joint venture's obligations.
B) each venturer uses its own property, plant and equipment, and carries its own inventory. However, the joint venture incurs the expenses. Also, liabilities are incurred in, and finance is raised in, the name of the joint venture, as these represent the joint venture's obligations.
C) each venturer uses its own property, plant and equipment. However, inventory is carried by the joint venture, which also incurs the expenses. Furthermore, liabilities are incurred in, and finance is raised in, the name of the joint venture, as these represent the joint venture's obligations.
D) each venturer uses its own property, plant and equipment, and carries its own inventory. It also incurs its own expenses and liabilities, and raises its own finance, which represent its own obligations.
E) all assets are held, liabilities and expenses incurred, and finance raisings done in, the name of the joint venture.
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Chapter 35: Accounting for Foreign Currency Transactions
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Q1) Which of the following statements is correct with respect to AASB 121 "The effects of changes in foreign exchange rates"?
A) Foreign currency transactions are recorded, on initial recognition in the presentation currency, by applying to the foreign currency amount the spot exchange rate between the presentation currency and the foreign currency at the date of the transaction.
B) At each end of the reporting period, foreign currency non-monetary items shall be translated using the closing rate.
C) At each end of the reporting period non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction.
D) At each end of the reporting period, non-monetary items that are measured at fair value in a foreign currency shall be translated using closing rate.
E) None of the given answers.
Q2) AASB 121 defines an exchange rate as a ratio for the exchange of two currencies at a particular time:
A)True
B)False
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Chapter 36: Translation of the Accounts of Foreign Operations
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Q1) AASB 121 prescribes alternative methods for the translation of the accounts of foreign operations.It depends upon whether these operations are integrated or self-sustaining:
A)True
B)False
Q2) Distributions from retained profits are translated at A) The 'spot rate'.
B) The rates current at the reporting date.
C) The rates current at the dates when the retained profits were created.
D) The rates current at the dates when the distributions were first proposed.
E) The rates current at the dates when the distributions were made.
Q3) The amount of a foreign operation's post-acquisition retained earnings as translated into Australian dollars will depend on the amount translated from the income statement:
A)True
B)False
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Chapter 37: Accounting for Corporate Social Responsibility
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Q1) In boundary setting for sustainability reporting under the Global Reporting Initiatives (GRI)Guidelines,which of the following statements is incorrect?
A) In parallel with defining the content of a report, an organisation must determine which entities' (e.g., subsidiaries and joint ventures) performance will be represented by the report.
B) The Sustainability Report Boundary should include the entities over which the reporting organisation exercises control both in and through its relationships with various entities in an upstream and downstream activity.
C) The Sustainability Report Boundary should include the entities over which the reporting organisation exercises significant influence both in and through its relationships with various entities in an upstream and downstream activity.
D) The Sustainability Report Boundary being voluntary pertains to the whole report only not the individual Performance Indicators.
E) None of the given answers.
Q2) A Sustainability Report is an example of a stand-alone social report.
A)True
B)False
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