Advanced Financial Accounting
Pre-Test Questions
Course Introduction
Advanced Financial Accounting explores complex accounting concepts and standards related to business combinations, consolidated financial statements, foreign currency transactions, and partnership accounting. The course delves into accounting for mergers and acquisitions, intercompany transactions, segment reporting, and transactions involving multinational entities. Students analyze current issues and case studies, interpret international financial reporting standards (IFRS), and evaluate the ethical considerations in advanced accounting practices. The course is designed to develop critical thinking and technical skills necessary for preparing and interpreting advanced financial reports in a global business environment.
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) Some of the perceived barriers to the harmonisation process (for the harmonisation of accounting standards globally)include:
A) Different business environments.
B) Different legal systems.
C) Different cultures.
D) Different political environments.
E) All of the given answers.
Answer: E
Q2) Which body reviews,on a timely basis within the context of existing International Accounting Standard and the IASB Framework,accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance?
A) International Accounting Standards Board (IASB).
B) International Financial Reporting Interpretations Committee (IFRIC).
C) International Interpretations and Issues Group (IIIG).
D) Urgent Issues Group (UIG).
E) Australian Accounting Standards Board (AASB).
Answer: B
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance to Financ
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Q1) Which of the following Statement of Accounting Concepts are still operational in Australia?
A)Statement of Accounting Concepts 1 to 4
B)Statement of Accounting Concepts 1 to 3
C)Statement of Accounting Concepts 1 and 2
D)Statement of Accounting Concepts 3 and 4
E)Statement of Accounting Concepts 2 and 3
Answer: A
Q2) SAC 2 (Objectives of General Purpose Financial Reporting)requires that general-purpose financial reports disclose information that is:
A)Relevant to the assessment of profit,funding and investing,and compliance.
B)Relevant to the assessment of financial and social performance,financial position and funding and investing and includes information about compliance.
C)Relevant to the assessment of performance,financial position and funding and investing,including information about compliance.
D)Relevant to the assessment of performance,financial position and cash flows.
E)None of the given answers.
Answer: C
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Chapter 3: Theories of Financial Accounting
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Q1) Firms are subject to political costs when:
A) They are quite small and have little political influence.
B) They choose accounting policies that best reflect the performance of the firm.
C) They record high profits and share those profits in the form of increased wages.
D) They are highly visible, in the media or other arenas, often as a result of high profits.
E) The community is happy with the firm's overall performance.
Answer: D
Q2) Which of the following are examples of categories of the main normative accounting theories that were developed in the 1950s and 1960s?
A) Current-cost accounting and conservatism.
B) Critical theory and opportunity-cost accounting.
C) ABC costing and historical-cost accounting.
D) Deprival-value accounting and exit-price accounting.
E) None of the given Answers.
Answer: D
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Chapter 4: An Overview of Accounting for Assets
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Q1) 'Recognised' in relation to asset disclosure may be defined as meaning:
A) Disclosed in the notes to the accounts but not reported on, or incorporated in amounts reported on the face of the balance sheet.
B) Classified according to nature or type within liquidity categories based on the operating cycle of the reporting entity.
C) Reported on, or incorporated in amounts reported on, the face of the balance sheet.
D) Familiar, of well-known usefulness.
E) None of the given answers.
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) The AASB Framework allows use of different measurement basis for similar assets as long as this is disclosed in the summary of accounting policies adopted in the notes to the accounts.
A)True
B)False
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Chapter 5: Depreciation of Property, plant and Equipment
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Q1) Magpie Ltd purchased a building on a prime central business district site for $800,000.The value of the land is considered to be $350,000.The useful life of the building is expected to be 25 years after Magpie Ltd spends a further $80,000 on improvements.The residual value of the building at that time is estimated to be $60,000.The benefits from owning the land and building are expected to be derived evenly.What is the appropriate annual depreciation charge?
A) $18,800
B) $32,800
C) $15,600
D) $14,000
E) None of the given answers.
Q2) The depreciation rate and useful lives of assets should not be revised during the depreciable life of the asset:
A)True
B)False
Q3) The expenditure to modify an asset so that its service potential is improved should be expensed.
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) Which of the following statement is true of revaluation model in AASB 116?
A) It is the preferred model of managers with bonus based payments.
B) It is required under AASB 116.
C) Once adopted the firm can no longer revert back to cost model.
D) Accumulated depreciation is required to be eliminated against the gross carrying amount of the asset.
E) None of the given answers.
Q2) AASB 116 provides guidance on fair values which states:
A) Where an active and liquid market exists for an asset, the market price represents evidence of the asset's fair value.
B) Fair values are determined on the basis that an entity is a going concern.
C) Where no market exists the price should be based on the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
D) All of the given answers.
E) None of the given answers.
Q3) The revaluation model is a tool used by managers to reduce political costs.
A)True
B)False
Page 8
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Chapter 7: Inventory
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Q1) Under AASB 102 revaluations are permitteD.
A) Only in the form of a write-down.
B) Only when an independent valuation is made by an external party.
C) Only if upward revaluations are credited to an Inventory Revaluation Reserve.
D) Only if the replacement cost of the asset is higher than the historical cost.
E) None of the given answers.
Q2) According to AASB 102 material information relating to which of the following must be disclosed?
A) The carrying amount of closing inventories included in equity accounted profits.
B) The carrying amount of inventories classified as non-current assets.
C) The aggregate amount of inventory recorded at recoverable amount.
D) The carrying amount of inventories revalued upwards as at the end of the period.
E) None of the given answers.
Q3) The value of inventory reported in the financial statements under AASB 102 may be reported at an amount lower than its original cost:
A)True
B)False
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Chapter 8: Accounting for Intangibles
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Q1) The approach to accounting for intangibles raises some issues because:
A) Assets are now subject to impairment testing, which will remove the professional judgement required for amortisation.
B) Consistency has now been achieved regarding research and development meaning entities cannot claim to have expended resources on potential benefits while other entities could not.
C) Many intangible assets will not be recognised under this approach, particularly in regard to internally generated assets.
D) Intangible assets are more likely to be recorded at fair values because of the active market criteria, which may overstate asset values.
E) None of the given answers.
Q2) 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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Chapter 9: Accounting for Heritage Assets and Biological Assets
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Q1) AASB 141 excludes certain biological assets from its scope.To be included.
A) The living animal or plant must be capable of earning revenue.
B) The asset must be alive and may include organisms such as viruses.
C) The living animal or plant must be used in a commercial venture.
D) The living animal or plant may only be used within an agricultural activity.
E) The living animal or plant must be capable of earning revenue and the living animal or plant must be used in a commercial venture.
Q2) AASB 141 requires biological assets to be measured at:
A) The lower of cost and net realisable value.
B) Recoverable amount.
C) Current replacement cost.
D) Fair value less costs to sell.
E) None of the given answers.
Q3) Which of the following items are not within the scope of AASB 141 "Agriculture"?
A) Pigs
B) Carcass
C) Sausages
D) Cattles
E) None of the given answers
Page 11
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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) A guarantee provided to a financier for a loan taken out by another entity,where default on that loan is uncertain as at the reporting date,is an example of a contingent liability:
A)True
B)False
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Chapter 11: Accounting for Lease
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Q1) A guaranteed residual value is that part of the residual value that is guaranteed by the lessee,or by a party related to the lessee.
A)True
B)False
Q2) Discuss how entities with debt to asset constraints are impacted by the classification of leases as either finance or operating leases.What are the implications for lease accounting?
Q3) Where a lessor is involved in a finance lease (risk has passed to the lessee)the lessor must:
A) Remove the asset in question from their balance sheet as they no longer own it.
B) Record a new asset on their balance sheet, a lease receivable, to replace the leased asset.
C) Only record the revenue earned from lease payments in the income statement as they are received.
D) Record the sale of the asset to the lessee to ensure the accounting records accurately reflect control of the leased asset.
E) None of the given answers.
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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) Businesses may be prepared to incur a loss on the defeasance of debt because:
A) It increases the certainty that the debt will be paid.
B) It is a means of eliminating the restrictive effects of any associated debt covenants.
C) It provides future reserves of assets that may be drawn upon when needed.
D) It increases the certainty that the debt will be paid and it provides future reserves of assets that may be drawn upon when needed.
E) None of the given answers.
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14
Chapter 13: Accounting for Employee Benefits
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Q1) Employee benefits include:
A) Wages and salaries, sick leave, payroll tax, annual leave.
B) Superannuation, wages and salaries, sick leave and annual leave.
C) Sick leave, annual leave, unemployment benefits, salaries and wages.
D) Annual leave, wages and salaries, post-employment benefits, payroll tax.
E) None of the given answers.
Q2) AASB 119 divides employee benefits into a number of categories,including:
A) Terminations benefits.
B) Payroll tax.
C) PAYG tax.
D) Performance increments.
E) Contingent payments.
Q3) In a long service leave liability,conditional period is period during which an employee gains legal entitlement to pro rata payment.
A)True
B)False
Q4) Non-vesting sick leave that has accumulated will be paid to employees when their employment ceases:
A)True
B)False
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Chapter 14: Share Capital and Reserves
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Q1) A forfeited shares account is:
A) A revenue account.
B) An expense account.
C) A liability account.
D) An asset account.
E) An equity account.
Q2) When a share split occurs:
A) Current shareholders receive more shares thus increasing their stake in the company.
B) Accounting entries are required to record the increase in the number of shares on hand.
C) It must be done so that any uncalled amounts are divided equally when the shares are issued.
D) More shares are available to be purchased by the general public, allowing the company to raise more funds.
E) None of the given answers.
Q3) Companies undertake share splits in order to increase their shareholders' funds:
A)True
B)False
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Chapter 15: Accounting for Financial Instruments
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Q1) It has been common practice to keep derivative financial instruments 'off balance sheet':
A)True B)False
Q2) An entity that has taken a buy position in a futures contract on a particular item will make a gain when the price of the item decreases:
A)True B)False
Q3) A put option on a company's shares entitles the holder to buy that company's shares at a future time for a prespecified price: A)True B)False
Q4) Compound instruments contain both a financial liability and equity component but exclude convertible notes: A)True B)False
Q5) Derivatives are sometimes called "secondary" financial instruments: A)True B)False
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Chapter 16: Revenue Recognition Issues
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Q1) Which of the following statements is not in accordance with AAS 118 "Revenue" with respect to revenue recognition?
A) When the selling price of a product includes an identifiable amount for subsequent servicing, that amount is deferred and recognised as revenue over the period during which the service is performed.
B) When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest.
C) When an entity sells goods and at the same time enter into a separate agreement to repurchase the goods at a later date, the two transactions are dealt with separately.
D) When goods or services are exchanged or swapped for goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.
E) E: When goods or services are exchanged or swapped for goods or services and the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.
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Page 18
Chapter 17: The Statement of Comprehensive Income and Statement of Changes in E
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Q1) Comprehensive income includes dividend payments to shareholders.
A)True
B)False
Q2) Profit is a measure of financial performance and therefore may not truly reflect the success or otherwise of an organisation:
A)True
B)False
Q3) An income statement that includes the following items: Revenue
Other Income
Employee Benefits and Costs
Motor Vehicle Expenses
Would have been prepared using the:
A) Nature of expense method.
B) Narrative method.
C) Revenues and gains approach.
D) The function of expense approach.
E) None of the given answers.
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Page 19
Chapter 18: Accounting for Share-Based Payments
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Q1) Which of the following is an acceptable measure of fair value of the equity instruments granted?
A) Cost of the equity instrument at initial recognition.
B) Estimate using a valuation technique to estimate what the price of the equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties.
C) Fair value of a similar equity instrument.
D) Net realisable value of the equity instrument
E) All of the given answers.
Q2) In accordance with AASB 2,how much Employee benefits expense related to the share option issue should Southport Ltd recognise for the year ended 30 June 2010?
A) $9,840
B) $12,000
C) $29,520
D) $36,000
E) None of the given answers
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Chapter 19: Accounting for Income Taxes
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Q1) The tax-effect of the temporary difference that arises from revaluation of non-current assets is recognised in profit and loss.
A)True
B)False
Q2) When a non-current asset is revalued,the recognition of future tax associated with an asset that has a fair value in excess of cost,acts to reduce the amount of the revaluation reserve:
A)True
B)False
Q3) Deferred tax assets are the amounts of income taxes recoverable in future periods that arise from assessable temporary differences.
A)True
B)False
Q4) It is possible for a firm to legally make a large accounting profit but pay little or no tax based on its taxable income:
A)True
B)False
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21
Chapter 20: Cash-Flow Statements
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Q1) To calculate the cash flow associated with an accrued expense,any increase in the associated liability should be added to the expense:
A)True
B)False
Q2) The statement of cash flows may assist in determining the ability of an entity to:
A) Generate cash flows.
B) Obtain internal finance.
C) Meet its financial commitments to customers.
D) Generate cash flows and meet its financial commitments to customers.
E) All of the given answers.
Q3) In accordance with AASB 107 "Cash Flow Statements",a bonus share issue is to be classified under financing activities.
A)True
B)False
Q4) Cash-flow statements should be subdivided into selling,financing and investing categories:
A)True
B)False
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Chapter 21: Accounting for the Extractive Industries
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Q1) The costs incurred in the development and construction phases require more judgement in determining whether or not they constitute an asset for the entity than other stages in the operation:
A)True
B)False
Q2) AASB 6 effectively permits entities to choose between the full-cost method and the area-of-interest method.
A)True
B)False
Q3) The costs-written-off-and-reinstated method permits the reversal of exploration and evaluation expenses recorded in an earlier period in order to record an asset,and it is consistent with the AASB Framework:
A)True
B)False
Q4) AASB 6 provides guidance to cover costs incurred in the five phases listed in AASB 1022 namely: exploration,evaluation,development,construction and production:
A)True
B)False
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23
Chapter 22: Accounting for General Insurance Contracts
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Q1) Which of the following is within the scope of AASB 1023 "General Insurance Contracts"?
A) Fixed fee service contracts;
B) Life insurance contracts;
C) Weather derivatives;
D) Product warranties;
E) Financial guarantee contracts.
Q2) General insurance is an important part of the economy as it:
A) Enables entities to reduce their risk exposure.
B) Benefits society by safeguarding individuals' homes.
C) Encourages investment in particular activities.
D) Deals with insurance for all areas of insurance other than life insurance.
E) All of the given answers.
Q3) Items to be disclosed under AASB 1023 include.
A) Inwards freight.
B) Revenue from operating assets.
C) Investment expenses.
D) Inwards reinsurance revenue.
E) All of the given answers.
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Chapter 23: Accounting for Superannuation Plans
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Q1) When a superannuation fund has inventories recognised as an asset,this should be valued at lower of cost or net realisable value.
A)True
B)False
Q2) AAS 25 requires the disclosure of at least a summary of the most recent actuarial report for defined contribution plans:
A)True
B)False
Q3) For a defined contribution plan and a defined benefit plan,the changes in net market values of the plan's financial liabilities since the beginning of the reporting period shall be included in the profit or loss for the reporting period.
A)True
B)False
Q4) 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
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Chapter 24: Events Occurring After Balance Sheet Date
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Q1) Fruitcorp Ltd has been negotiating a merger with a company that is currently its major supplier.Subsequent to reporting date the merger agreement is finalised.The merger materially affects the size and structure of the new entity and should bring substantial economic benefits to all shareholders.How should this event be reported according to AASB 110?
A) The size and significance of this event is such that it should be fully reflected in the financial accounts. New group accounts should be prepared to reflect the actual economic entity that exists at the time of completion of the financial reports.
B) No disclosure is appropriate.
C) A description of the event, the fact that it occurred after reporting date and its financial effect on the company should be disclosed by way of a note to the accounts.
D) Disclosure of the event in the Directors' Declaration is required by AASB 110.
E) None of the given answers.
Q2) The Directors' Declaration must be signed before the reporting date:
A)True
B)False
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26
Chapter 25: Segment Reporting
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Q1) AASB 8 allows reportable segments to be combined as a single reportable business or geographical segment if: (a)they exhibit similar long-term financial performance; and (b)they are similar in all of the appropriate factors identified in the Standard in relation to segment revenues,expenses,assets and liabilities:
A)True
B)False
Q2) IAS 8 was issued as part of the ongoing process to converge IAS standards with US Accounting Standards:
A)True
B)False
Q3) Identification of operating segments in AASB 8 "Operating Segments" adopts a 'rules-based' approach,while its predecessor AASB 114 "Segment Reporting" adopts a 'principles-based' approach.
A)True
B)False
Q4) AASB 8 bans the disclosure of segments that do not pass the "10 per cent test".
A)True
B)False
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Chapter 26: Related-Party Disclosures
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Q1) AASB 124 requires disclosure of:
A) all material related party transactions only.
B) all material transactions with directors and its close family members.
C) all material related party transactions except those derived by virtue of normal dealings with a customer.
D) All of the given answers.
E) all material related party transactions only and all material transactions with directors and its close family members.
Q2) The most common example of a relationship reflecting control is that between an investor and its associate company:
A)True
B)False
Q3) AASB 124 reflects the view that transactions carried out by related parties cannot be presumed to be at arm's length:
A)True
B)False
Q4) Related parties are not considered to be interdependent:
A)True
B)False
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Chapter 27: Earnings Per Share
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Q1) The effect of a bonus issue on the market value of an entity's equity is:
A) The number of shares are increased, meaning that each shareholder benefits from the conversion of retained earnings into additional shares. Each shareholder benefits proportionately equally, however, so their relative positions remain the same.
B) The total equity of the entity remains the same, apart from the reclassification of reserves used to make the bonus issue. Each shareholder benefits from the ability to sell off the additional shares provided, so the market value of the entity remains the same.
C) Because shareholders often respond to a bonus issue by selling off the 'windfall' shares, the market price is observed to often drop as a result of the increased supply of shares for sale.
D) Theoretically it should have no effect, but empirical evidence suggests that a bonus issue is used to signal an increase in dividends, so the total market value of the entity does sometimes increase.
E) None of the given answers.
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Chapter 28: Accounting for Group Structures
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Q1) A subsidiary:
A) is excluded from consolidation because the investor is a venture capital organisation.
B) is not excluded from consolidation simply because the investor is a venture capital organisation.
C) is excluded from consolidation because its business activities are dissimilar from those of other entities within the group.
D) is not excluded from consolidation simply because the investor only has significant influence, and not control, over it.
E) is excluded from consolidation because the investor has no Board representation in the subsidiary.
Q2) AASB 127 "Consolidated and Separate Financial Statements" permits the reporting periods of entities in the group to be dissimilar as long as adjustments are made on consolidation to remove the impacts of different reporting periods.
A)True
B)False
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Chapter 29: Further Consolidation Issues I: Accounting for
Intragroup Transact
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Q1) 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
Q2) Examples of intragroup transactions include:
A) Dividends payable to group members.
B) The payment of taxation.
C) The recognition of minority interests.
D) The sale of inventories to external parties.
E) None of the given answers.
Q3) In the absence of an election to be a 'tax consolidated group',the Australian Tax Office assesses income earned by the individual legal entities in an economic group and does not take into consideration consolidation adjustments required for group accounts:
A)True
B)False
Q4) Intragroup profits are eliminated in consolidation to reduce consolidated profits. A)True
B)False
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Chapter 30: Further Consolidation Issues II: Accounting for Minority Interests
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Q1) Minority interests are shown as equity: that is,as contributors of equity capital to the economic entity:
A)True
B)False
Q2) As prescribed in AASB 127,which of the following statements is incorrect in regards to non-controlling interests in subsidiaries?
A) Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.
B) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests.
C) Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
D) Non-controlling interests is classified as equity because non-controlling interests does not meet the definition of a liability in the AASB Framework.
E) None of the given answers.
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32
Chapter 31: Further Consolidation Issues III: Accounting for
Indirect Ownershi
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Q1) When a parent acquires its interest in an intermediate subsidiary after the intermediate subsidiary acquires an interest its own subsidiary,this is referred to as a non-sequential acquisition:
A)True
B)False
Q2) The following diagram represents the ownership of issued share capital of the companies in a group.What is the ownership interest of A Ltd in D Ltd?
A) 50 per cent
B) 96.5 per cent
C) 68 per cent
D) 80 per cent
E) None of the given answers.
Q3) The non-controlling interest in post-acquisition movement in reserves and post-acquisition profits is based on the combined sum of both direct non-controlling interest and indirect non-controlling interest.
A)True
B)False
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Chapter 32: Further Consolidation Issues Iv: Accounting for
Changes in the Deg
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Q1) Under the step-by-step method,the need to revalue the subsidiary's assets,liabilities and contingent liabilities to fair value at each acquisition date,is not an indication that the acquirer has elected to apply the revaluation method for measuring assets,such as that prescribed by AASB 116:
A)True
B)False
Q2) In calculating the profit or loss on the sale of shares in a controlled entity that is to be included in the group accounts,consideration should be given to the share of post-acquisition profits and movements in reserves that have been recognised.
A)True
B)False
Q3) Control over a subsidiary may be lost without a change in absolute or relative ownership levels.An example of this is loss of control to a court administrator as a result of bankruptcy.
A)True
B)False
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34
Chapter 33: Accounting for Equity Investments
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Q1) If the investor is required to prepare consolidated financial statements,it recognises its investment in an associate by applying the equity method of accounting in its consolidated financial statements,and by applying the cost method in its separate financial statements.
A)True
B)False
Q2) An equity investment that is expected to be held for longer than six (6)months after reporting date is considered a non-current asset:
A)True
B)False
Q3) Equity investments include:
A) Unsecured notes.
B) Trust units.
C) Shares in corporations.
D) Trust units and shares in corporations.
E) All of the given answers.
Q4) Investments are commonly classified into seven different categories:
A)True
B)False
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Chapter 33: Accounting for Equity Investments
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Q1) Which of the following statements about jointly controlled assets is not correct?
A) A venturer shall recognise in its financial statements, the share of liabilities incurred jointly with other venturers in relation to the joint venture.
B) A venturer shall recognise in its financial statements, any expenses it has incurred jointly in respect of its interest in the joint venture.
C) A venturer shall recognise in its financial statements, any liabilities it has incurred.
D) A venturer shall recognise in its financial statements, the share of jointly controlled classified according to the nature of the assets.
E) The 'normal' consolidation procedures (i.e., adjustments and eliminations) are applied where the venturer prepares consolidated financial statements.
Q2) As prescribed in AASB 131 "Interests in Joint Ventures",where a separate entity is formed the joint venture is referred to as jointly controlled operations.
A)True
B)False
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Chapter 35: Accounting for Foreign Currency Transactions
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Q1) The effect of an increase in the exchange rate for Australian dollars relative to other major world currencies would include:
A) Offshore debt would become more expensive.
B) The cost of importing goods from overseas would increase.
C) People buying goods overseas with Australian dollars would find the goods relatively cheaper than before.
D) The cost of Australian exports for overseas buyers would decrease.
E) All of the given answers.
Q2) In selecting the appropriate foreign currency exchange rates to apply in translating foreign currency transactions,the accountant exercises an important element of judgement about whether the rates are overvaluing or undervaluing the reporting currency:
A)True
B)False
Q3) The purpose of 'hedge accounting' is to recognise the offsetting effects on profit or loss of changes in the nominal values of the financial instrument and the hedging instrument:
A)True
B)False
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Page 37
Chapter 36: Translation of the Accounts of Foreign Operations
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Q1) 'Exchange rate' is:
A) Not defined in AASB 121.
B) Only defined in AASB 139.
C) Defined as 'the ratio of exchange for two currencies' in AASB 121.
D) All of the given answers.
E) None of the given answers.
Q2) Under the translation method required by AASB 121,the approach to translating a foreign operation's accounts includes:
A) Non-monetary items included in the balance sheet are translated at the rate current at reporting date.
B) Equity at the date of investment is translated at the rate for the when the investment was acquired.
C) Revenue and expense items are translated at the exchange rates current at the applicable transaction dates.
D) Monetary items included in the balance sheet are translated at the exchange rate current at the reporting date.
E) All of the given answers.
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Chapter 37: Accounting for Corporate Social Responsibility
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Q1) The traditional accounting model focuses on property rights and market transactions and so tends to treat environmental goods such as air and water as being free and therefore not assets,expenses or revenues that need to be reported.
A)True
B)False
Q2) A specific Australian requirement for companies to provide environmental information in their annual reports is available in AASB 137 "Provisions,Contingent Liabilities and Contingent Assets".
A)True
B)False
Q3) Freeman and Reid provide a broad definition of 'stakeholders' as follows: 'any identifiable group or individual who can affect the achievement of an organisation's objectives,or is affected by the achievement of an organisation's objectives':
A)True
B)False
Q4) A Sustainability Report is an example of a stand-alone social report.
A)True
B)False
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