Advanced Financial Accounting
Midterm Exam
Course Introduction
Advanced Financial Accounting delves into complex topics beyond the basics of financial reporting, including business combinations, consolidated financial statements, foreign currency transactions, and accounting for partnerships. The course covers contemporary issues such as segment and interim reporting, accounting for non-profit and governmental entities, and the use of international financial reporting standards (IFRS). Emphasis is placed on interpretation, analysis, and application of advanced accounting principles for decision-making, enabling students to tackle real-world scenarios and understand the regulatory framework governing modern financial reporting.
Recommended Textbook
Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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29 Chapters
707 Verified Questions
707 Flashcards
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Page 2
Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Sample Questions
Q1) The body that oversees the operation of the AASB is:
A) ASIC
B) The Financial Reporting Council
C) The Joint Standing Committee
D) The Foundation Board of Management
Answer: B
Q2) The ASX listing rules include two mandatory requirements relating to their corporate governance guidelines.These include a requirement:
A) that the top 500 companies have an audit committee
B) that the top 300 companies have an audit committee
C) that all listed companies have an audit committee
D) that the top 500 companies have an independent audit committee
Answer: B
Q3) Compliance with accounting standards by reporting entities in the public sector is required by:
A) ASIC
B) specific acts applying to the public sector
C) FRC
D) the Corporations Act
Answer: B
Page 3
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Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Sample Questions
Q1) Which of these is a constraint on financial reporting rather than a qualitative characteristic?
A) Relevance
B) Comparability
C) Timeliness
D) Reliability
Answer: C
Q2) Management must ensure that the information contained in financial statements is presented in such a way that the statements can be understood only by:
A) the financially literate
B) accounting professionals
C) customers and employees
D) None of the above. Everyone should be able to understand financial statements
Answer: A
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Sample Questions
Q1) In Australia,income is limited to:
A) revenue and gains
B) revenue and expenses from the delivery or production of goods and services
C) revenues and expenses from ongoing normal operations
D) any transaction that results in an increase in equity
Answer: A
Q2) The recognition of an element of a financial statement is:
A) a description of the element in the notes to the financial statement
B) an action or process to record the transaction or event in the accounting records
C) a statement identifying the characteristics that an element must have
D) both A and C
Answer: B
Q3) The constraint(s)on relevant,reliable,material,understandable and comparable information is/are:
A) verifiability
B) timeliness
C) cost/benefit
D) B and C
Answer: C
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Sample Questions
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) 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
Q3) If accountants cannot agree on a single basis of measurement,then the best approach is to present the financial statements under several alternatives and let the user choose the one that is best suited to their needs.Discuss.
Q4) Discuss the advantages and disadvantages associated with the use of the contract-price method of measuring liabilities.
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Chapter 5: The Choice of Accounting Methods
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Sample Questions
Q1) In agency relationships between owners,managers and debt-holders,it can normally be assumed,in relation to debt contracts,that:
A) Managers will align their interests with those of debt-holders
B) Debt-holders will align their interests with those of owners
C) Managers will align their interests with those of owners
D) None of the above
Q2) The income-or-profit smoothing hypothesis suggests that:
A) a variable income stream supports a lower level of dividends and raises the perceived riskiness of the firm compared to a stable income stream
B) a variable income stream supports a higher level of dividends and raises the perceived riskiness of the firm compared to a stable income stream
C) a variable income stream supports a higher level of dividends and lowers the perceived riskiness of the firm compared to a stable income stream
D) none of the above
Q3) Explain the income smoothing hypothesis.In your answer discuss the reluctance of Chief Financial Officers to use accounting policy choice to achieve income smoothing post-Enron.
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Page 7
Chapter 6: The Balance Sheet: an Overview
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Sample Questions
Q1) Which statement is incorrect?
A) Under AASB 101, assets and liabilities must not be set-off unless set-off is permitted or required by another accounting standard
B) Between 1979 and 1999, there was no Australian accounting standard dealing specifically with the statement of financial position
C) Under AASB 101, there is no materiality override
D) None of the statements is incorrect
Q2) Which of the following items is a non-monetary asset?
A) Loan
B) Inventories
C) Accounts receivable
D) All of the above are non-monetary assets
Q3) The current/non-current basis of classifying assets and liabilities in the statement of financial position is based on their:
A) marketability
B) longevity
C) source
D) none of the above
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Chapter 7: Accounting for Current Assets
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Sample Questions
Q1) The item that is not part of manufacturing inventory is:
A) supplies inventory
B) raw materials
C) work-in-process
D) none of the above, i.e., all are part of manufacturing inventory
Q2) The justification for the inventory valuation rule,the lower of cost and net realisable value,is:
A) conservatism
B) cost versus benefit
C) reliability
D) materiality
Q3) Under the perpetual inventory system,the accounting entry to record a write-down of $600 of various inventory items from cost to net realisable value is:
A) debit cost of goods sold $600; credit inventory $600
B) debit inventory $600; credit cost of goods sold $600
C) debit inventory $600; credit bank $600
D) debit cost of goods sold $600; credit bank $600
Q4) Explain and discuss the criteria contained in AASB 101 for distinguishing between current and non-current assets.
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Chapter 8: Accounting for Property, plant and Equipment
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Sample Questions
Q1) Under the provisions of AASB 116,concerning an asset that has been re-valued upward,which statement is correct?
A) If the asset is disposed of, the revaluation surplus can remain in the accounts after the disposal of the asset that created it
B) The amount of the revaluation increment is included in equity without being included in net profit
C) Neither of the statements is correct
D) Both of the statements are correct
Q2) Under AASB 116:
A) net revaluation decrements are normally required to be credited to a revaluation surplus
B) net revaluation increments are normally required to be credited to an income account
C) net revaluation decrements are normally required to be debited to a revaluation surplus
D) net revaluation increments are normally required to be credited to a revaluation surplus
Q3) Explain and discuss how donated assets should be recorded in the accounts.
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Chapter 9: Accounting for Company Income Tax
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Sample Questions
Q1) Jordyn Ltd acquired land in 20X9 for a cash payment of $240 000.In 2011,Jordyn Ltd revalued that land to $340 000.If the company income tax rate is 30%,the following entry should be made:
A) Dr Land \(\quad \$ 30000\)
\(\mathrm { Cr }\) Deferred Tax Liability\(\quad\$ 30000\)
B) \(\begin{array} { l l l }
\text { Dr Revaluation Surplus } & \$ 30000 & \\
\text { Cr Deferred Tax Liability } & & \$ 30000 \end{array}\)
C) Dr Revaluation Reserve\(\quad\$ 30000\)
\(\mathrm { Cr }\) Deferred Tax Asset\(\quad\$ 30000\)
D) \(\text { No entry is required }\)
Q2) Discuss the results of empirical research that examines whether tax-effect accounting should continue to be required.
Q3) AASB 112 requires that:
A) current and deferred tax expense are reported as one figure 'income tax expense'
B) current and deferred tax expense are disclosed separately
C) deferred tax expense is not identifiable in the financial reports
D) current tax expense is not identifiable in the financial reports
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Page 11
Chapter 10: Accounting for Investments
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Sample Questions
Q1) Under AASB 127,the test for the recognition of a subsidiary is:
A) ownership by the investor of 100% of the shares in another company
B) ownership by the investor of more than 50% of the shares in another company
C) power by the investor to control the investee
D) both B and C
Q2) Where an inter-corporate investment is carried at acquisition cost plus or minus the investor's share of post-acquisition profits or losses of the investee,and asset revaluations by the investee are ignored,the method of equity accounting that is being applied is the:
A) hybrid equity method
B) cost-based equity method
C) pure equity method
D) mixed equity method
Q3) Explain the nature of investment properties and summarise the accounting treatment proposed by AASB 140.
Q4) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
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Chapter 11: Accounting for Intangible Assets
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Sample Questions
Q1) Which of these is not correct under AASB 138 concerning the measurement of intangible assets subsequent to acquisition?
A) If the revaluation model is used, amortisation is not required even if the useful life of the asset is finite
B) With both the cost and the revaluation models, all assets should be regularly tested for impairment
C) If the cost model is used, amortisation is required if the useful life of the asset is finite
D) The revaluation model is only permitted to be used if there is an active market for the asset
Q2) The initial patent period granted by the Australian Government and the potential legal life of trademarks and brand names,are respectively:
A) 10 years; unlimited, provided they continue to be registered
B) 16 years; unlimited, provided they continue to be registered
C) 20 years; 16 years
D) 7 years; 7 years
Q3) 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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Sample Questions
Q1) A typical lease agreement will always set out all of the following except:
A) who is responsible for the payment of maintenance and repair costs, insurance and taxes
B) that the lease is non-cancellable by either party
C) the amount and timing of the lease (rental) payments
D) the period of the lease
Q2) The rental method of accounting for leases is best described as:
A) a method of accounting under which the lessee recognises assets and liabilities only from accruals or prepayments of lease rentals
B) a method of accounting under which the lessor recognises assets and liabilities only from accruals or prepayments of lease rentals
C) the method of accounting which is used to account for finance leases
D) a method of accounting under which the asset is measured as the present value of the rental payments and is shown as 'lease receivables'
Q3) Discuss the implications of the proposal that operating/finance lease distinction be dropped.
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Chapter 13: Accounting for Employee Benefits
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Sample Questions
Q1) A past service cost arises when:
A) an employee is terminated and the employer must provide compensation for the past service of the employee
B) a defined benefits post-employment plan is established or when the plan's benefits are increased
C) a defined contributions post-employment plan is established or when the plan's benefits are increased
D) a new employee commences employment
Q2) 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
Q3) There are two types of risk associated with post-employment benefits,investment risk and actuarial risk.Explain these terms and describe the situations when these risks are borne by the employee and when they are borne by the employer (in accordance with AASB 119).
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15
Chapter 14: Accounting for Financial Instruments
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Sample Questions
Q1) Which of the following statements is correct?
A) The writer (seller) of a call option on shares receives a fee from the buyer of the option
B) The writer (seller) of a call option on shares may or may not have to sell the shares to the buyer of the option
C) The writer (seller) of a call option on shares has an obligation to sell the shares at a future time to the buyer of the option
D) All of the above are correct
Q2) Explain the respective rights and obligations of:
(a)the buyer of a call option over shares
(b)the writer (seller)of a call option over shares
(c)the buyer of a put option over shares
(d)the writer (seller)of a put option over shares
Q3) SPI 200 futures contracts:
A) cease trading on the third Thursday of the contract month
B) are settled on the third Thursday of the contract month
C) may only be used by traders
D) all of the above
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Page 16
Chapter 15: Equity
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Sample Questions
Q1) Under AASB 132,preference shares that must be redeemed by the issuer for a fixed or determinable amount at a fixed or determinable future date will be classified as:
A) liability
B) equity
C) part liability, part equity
D) cannot tell
Q2) A scheme where a company provides employees with options to acquire shares in the company where the primary aim of the scheme is to reduce conflict between owners and employees is known as:
A) a compensatory plan
B) a non-compensatory plan
C) an employee plan
D) none of the above
Q3) Whitely Ltd issues 50 000 shares at $4.60 per share.The accounting effect of the issue is:
A) debit cash at bank $230 000, credit share capital $230 000
B) debit applications $230 000, credit share capital $230 000
C) debit cash at bank $50 000, credit share capital $50 000
D) none of the above
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Page 17
Chapter 16: The Income Statement
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Sample Questions
Q1) The expense example that is a classification by nature rather than by function is:
A) depreciation expense
B) administrative expenses
C) marketing expenses
D) occupancy expenses
Q2) The correct statement is:
A) Current Australian accounting standards do not identify any particular categories of 'unusual' items for special disclosure in the income statement
B) Current Australian accounting standards require activities that are attributable to transactions or other events outside the ordinary activities of the entity to be disclosed separately
C) AASB 101 requires the separate disclosure of significant items
D) None of the above is correct
Q3) Which of these items would not be regarded as revenue?
A) Donations received
B) A refundable deposit
C) A liability of $10 000 that has been forgiven
D) None of the above, i.e., all would be regarded as revenue
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18
Chapter 17: The Cash Flow Statement
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Sample Questions
Q1) 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
Q2) All of these are classified as financing items under AASB 107 'Cash Flow Statements'-2 except:
A) in the cash flow statement of the lender cash repayments by borrowers
B) cash paid to buyback the company's shares
C) proceeds from the issue of debentures
D) none of the above, i.e., all are classified as financing items
Q3) Discuss the arguments for and against the presentation of the cash flow statement using the indirect approach rather than the direct approach.
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Chapter 18: Financial Reporting: Segment Reporting, value
Added Statements, highlights Statements and
Financial Information
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Sample Questions
Q1) The presentation of future-oriented financial information in company annual reports: A) is most helpful in monitoring management's stewardship function B) should be set out so as to enable a comparison with actual results at the end of the year
C) is now required in most English-speaking countries D) all of the above
Q2) A business reports the following in its financial statements:
\[\begin{array} { l r }
\text { Net profit before tax } & \$ 150 \\
\text { Interest expense } & 20 \\
\text { Income tax expense } & 30 \\
\text { Total assets at the beginning of the year } & 700 \\
\text { Total assets at the end of the year } & 850
\end{array}\] Its rate of return on total assets is:
Page 20
Q3) Discuss the benefits of the 'management approach' adopted by AASB 8.
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Chapter 19: Further Financial Reporting Issues
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Sample Questions
Q1) The Australian Securities Exchange requires listed companies to prepare and file financial reports:
A) quarterly
B) half-yearly
C) annually only
D) monthly
Q2) The Corporations Act 2001 and Australian Accounting Standard AASB 1039 require that 'concise financial reports':
A) need not include detailed notes to the financial statements
B) need not show comparative figures for the previous period
C) need to include a condensed income statement and balance sheet only
D) need not include the directors' and the auditor's reports
Q3) In deciding whether an error or omission is material,it is usually necessary to consider:
A) the size of the error or omission
B) the nature of the account which is the subject of the error or omission
C) both A and B
D) none of the above
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21
Chapter 20: Accounting for the Extractive Industries
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Sample Questions
Q1) Bigspill Gas & Oil Ltd began operations on 1 July 20X1.During the year ended 30 June 20X2,Bigspill explored five different areas of interest and spent $200 000 in each area.The exploration results indicated that three areas were likely to be productive and Bigspill acquired leases over the three areas at costs of $400 000,$720 000 and $480 000 respectively.Under the expense method of accounting for exploration and evaluation costs in the extractive industries,Bigspill would include which of the following amounts in its statement of financial position as at 30 June 20X2 for Exploration and Evaluation Costs?
A) $2 200 000
B) $1 600 000
C) $2 600 000
D) $ Nil
Q2) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
Q3) Describe the activities involved in the pre-production phase in the production of minerals,oil and gas and the accounting treatments that might be allowed for costs arising from this phase.
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Page 22
Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Sample Questions
Q1) Compare and contrast the two types of contract distinguished by AASB 111,and provide an example of each.
Q2) The percentage-of-completion method for recognising profit on a construction contract will usually:
A) show a higher profit in all years than will the completed-contract method
B) show a higher profit in some year(s) and a lower profit in some year(s) than will the completed-contract method
C) show a lower profit in all years than will the completed-contract method
D) show a lower profit in most years than will the completed-contract method
Q3) Using the percentage-of-completion method for recognising profit on a construction contract is advisable in situations where:
A) future costs are likely to fluctuate substantially
B) the ability of either party to the contract to satisfy the terms of the contract is unknown
C) the contract price is clearly specified in a non-cancellable contract
D) the percentage-of-completion method is not advisable in any of the above situations
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Page 23
Chapter 22: Accounting for Agricultural Activity
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Sample Questions
Q1) Alton Downs Ltd has an orchard of citrus trees with an estimated net realisable value at 1 January 20X1 of $1 600 000.During the year ended 31 December 20X1 fruit with an estimated fair value of $300 000 was picked.The fruit was still on hand at the end of the year.Estimated sales commission on this fruit was .Costs of picking,sorting,packing and storage totalled $125 000.The fruit was sold in 20X2 (after the 20X1 financial statements were prepared)for $430 000.On 31 December 20X1 the orange orchard had an estimated net realisable value of $1 550 000.The fruit on hand at 31 December 20X2 should be valued at:
\[\$ 25000\]
A) $300 000
B) $275 000
C) $125 000
D) $475 000
Q2) The accounting treatment of government grants under AASB 141 requires that:
A) unconditional grants are to be treated as non-current assets when they become receivable
B) unconditional grants are to be treated as income when they become receivable
C) unconditional grants are to be treated as income
D) none of the above
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Page 24
Chapter 23: Accounting for Superannuation Plans
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Sample Questions
Q1) Discuss the roles of APRA,Asic and the ATO in the regulation of the superannuation industry.
Q2) The definition of the accrued benefits of the members of a superannuation plan as 'the present value of expected future payments arising from membership of the plan up to the measurement date' is relevant for:
A) externally managed plans
B) all superannuation plans
C) defined benefit plans
D) defined contribution plans
Q3) A change in the net market value of a superannuation plan's assets over a period is included in the income of:
A) all superannuation plans
B) defined contribution superannuation plans
C) self-managed superannuation plans
D) defined benefit superannuation plans
Q4) Explain the essential features of a defined benefit,externally managed,non-contributory superannuation plan whose benefits are not vested.
Q5) Discuss the differences between the requirements of ED179 and AAS 25.
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Chapter 24: Accounting for Financial Institutions
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Sample Questions
Q1) The three broad categories of insurance do not include:
A) life insurance
B) fixed fee service contracts
C) fixed insurance services
D) general insurance
Q2) 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.
Q3) Banks often classify investments held by them as either trading assets or available for sale investments.Initially,these investments are required to be measured at:
A) lower of cost and net market value
B) market value for trading securities and cost for investment securities
C) market value for trading securities and amortised cost for investment securities
D) fair value
Q4) Life insurance activities can be divided into two main categories.Identify these categories and explain the different types of activities which are classified under these categories.Illustrate with examples where possible.
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Chapter 25: Financial Reporting in the Public Sector
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Q1) Rowles (1992)concludes that there is no difference between investments such as in roads and drains made by public sector entities and assets such as blast furnaces made by the private sector.Discuss this view in the light of accounting for infrastructure and heritage assets.
Q2) 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
Q3) Who are the likely main users of general-purpose financial reports of (a)governments and (b)private sector businesses? Briefly outline why each user group listed under (a)might be interested in the general-purpose financial reports of governments.Then explain the reasons for any similarities and/or any differences between the two lists of users.
Q4) Compare government financial statistics with the general purpose GAAP reporting models.
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) 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
Q2) International accounting standards are applicable:
A) only to for-profit entities in the private sector
B) to for-profit and not-for-profit entities and government business enterprises
C) to for-profit and not-for-profit entities but not to government business enterprises
D) to for-profit entities including government business enterprises
Q3) Describe and explain the strategies adopted by the AASB in order to achieve the objective of international harmonisation of accounting standards in Australia.
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Chapter 27: Foreign Currency Translation
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Sample Questions
Q1) Respectively,a company's domestic currency,functional currency and presentation currency are:
i.the currency in which the financial statements must be presented
ii.the currency in which an entity is required to measure its financial performance and position
iii.the currency of the country of incorporation
iv.the currency of the country in which the majority of shareholders are located
A) i, ii, iv
B) iii, iv, i
C) iii, ii, i
D) iv, iii, ii
Q2) A transaction that is denominated on or requires settlement in a foreign currency is:
A) a forward agreement
B) a foreign currency transaction
C) a spot rate
D) a hedging instrument
Q3) 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) The Australian government ratified the Kyoto Protocol on:
A) 3 December 2007
B) 1 January 2005
C) 11 December 1997
D) 16 February 2005
Q2) When an entity's net emissions are less than the permits they hold,at the end of the year they:
A) must forfeit the excess credits
B) can sell the excess credits to other entities
C) can bank the excess credits for future use
D) B and C above
Q3) When an entity's net emissions are greater than the permits they hold,at the end of the year they may:
A) purchase approved carbon offsets
B) purchase unused emission permits from other entities
C) have to pay a emissions fee to the government
D) all of the above
Q4) Discuss the basic characteristics of the Carbon Pricing Mechanism (CPM).In your answer,explain the cap and trade scheme.
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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) The advantage of professions,such as accountants,having self-regulatory codes of ethics is:
A) they are likely to be more lenient than legal rules and regulations enforced by the courts
B) they can forestall action by government regulatory bodies such as the Australian Securities and Investments Commission
C) they are developed and imposed by professionals who understand the problems of practitioners
D) All of the above are advantages
Q2) 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
Q3) Ethical egoism is based on a belief that people should act in a way that:
A) maximises the 'good' of the person making the decision
B) maximises the 'common good'
C) maximises good to the top stratum of the elite
D) conforms with the rules established by God
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