Advanced Financial Reporting
Final Exam Questions
Course Introduction
Advanced Financial Reporting delves deeply into complex financial accounting concepts and practices, focusing on the preparation and analysis of consolidated financial statements, accounting for business combinations, foreign currency transactions, and financial instruments. The course emphasizes the application of International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), exploring their implications for multinational corporations. Students gain expertise in disclosure requirements, fair value measurement, and the intricacies of segment and interim reporting. Through case studies, practical exercises, and critical analysis, learners develop the skills necessary to interpret advanced financial reports and address challenging real-world reporting issues faced by modern businesses.
Recommended Textbook
Financial Accounting and Reporting An International Approach 1st Edition by
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Craig Deegan
Chapter 1: An Overview of the International External Reporting Environment
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Q1) The Financial Services Authority in the UK (FSA)has the responsibility,among other things,to monitor and regulate various investment products and superannuation in the UK.
A)True
B)False
Answer: True
Q2) The role of the Financial Reporting Council is to provide broad oversight of the process for setting International standards,including the authority to direct the IASB to develop,amend or revoke a particular standard.
A)True
B)False
Answer: False
Q3) Accounting cannot be considered to be 'culture free' because the value systems of accountants may be expected to be related to and derived from the values of the society with special reference to work related values and,as such,impacts on accounting systems.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance
to Financial Reporting
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Q1) Which of the following statement(s)is/are true of general purpose financial reports?
A)General purpose financial reports should be prepared by all reporting entities.
B)General purpose financial reports are reports that comply with statements of accounting concepts and accounting standards.
C)General purpose financial reports are intended to meet the information needs common to users who are able to command the preparation of reports.
D)General purpose financial reports should be prepared by all reporting entities and general purpose financial reports are reports that comply with statements of accounting concepts and accounting standards.
Answer: D
Q2) Transactions or events that cannot be linked to a 'cost' or a 'market price' are not recognised.
A)True
B)False
Answer: True
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Chapter 3: Theories of Financial Accounting
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Q1) Problems associated with rewarding managers based on share-price movements include:
A)Share prices do not often reflect the value of the business.
B)Share prices are a 'noisy' measure of management performance.
C)Share prices track closely the profit measures so it is more efficient to just use profit.
D)Share prices do not often reflect the value of the business and share prices are a 'noisy' measure of management performance.
Answer: B
Q2) According to Chambers' CoCoA model,if assets cannot be sold separately they should be deemed to have no value.
A)True
B)False
Answer: True
Q3) Fair value accounting is an example of positive accounting theory.
A)True
B)False
Answer: False
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Chapter 4: An Overview of Accounting for Assets
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Q1) IAS 16 Property,Plant and Equipment allows both cost and revaluation models to be applied as a measurement basis to one class of property,plant and equipment.
A)True
B)False
Q2) Using the cost model outlined in IAS 16 to measure property,plant and equipment at acquisition,which of the following costs would not be included?
A)directly attributable costs
B)initial estimates of dismantling and removal costs
C)12-month servicing plan
D)purchase price
Q3) The class of assets that is to be valued at lower than cost or net realisable value is:
A)non-current assets.
B)trade receivables.
C)self-generating and regenerating assets.
D)inventories.
Q4) Discuss various measurement rules that can be adopted for measurement of assets.
Q5) Discuss the recognition rules of assets purchased in one lump-sum payment.
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Chapter 5: Depreciation of Property, Plant and Equipment
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Q1) Where an addition to or extension of a depreciable asset is separable from the original asset and able to be used after that asset is disposed of,the extension or addition should still be depreciated over the life of the original asset.
A)True
B)False
Q2) Discuss how the useful life of a depreciable asset is determined.
Q3) Profit on the sale of an asset is calculated:
A)by subtracting the disposal proceeds from the current carrying amount of the asset.
B)after assessing the fair value of the asset and subtracting the proceeds on the sale.
C)once depreciation has been applied to the date of sale.
D)by subtracting the updated carrying amount from the net proceeds on disposal.
Q4) IASB 16 requires that depreciation be reviewed:
A)at least annually.
B)as soon as the expectations regarding the patterns of use of the asset change.
C)only when changes in the depreciation calculation are material.
D)immediately upon a revision of the useful life of the asset.
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Chapter 6: Revaluations and Impairment Testing of
Non-Current Assets
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Q1) Once an entity elects to value a class of assets using fair value it can switch back to cost basis measurement as long as there is justifiable reason.
A)True
B)False
Q2) Explain the process that an entity must undertake when converting from the cost model to the valuation model basis of accounting for its non-current assets.
Q3) Discuss the potential usefulness of the gross method in revaluation of non-current assets.
Q4) By permitting some classes of assets to be valued at cost and others at fair value the IASB has:
A)removed any confusion regarding the total balance of non-current assets.
B)forced entities to accurately reflect their true financial position at any point in time.
C)created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness.
D)removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory.
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Chapter 7: Inventory
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Q1) Which accounting policy for manufacturing fixed costs is likely to favour managers whose firms are subject to political scrutiny?
A)direct costing
B)absorption costing
C)LIFO assuming prices are falling
D)FIFO assuming prices are rising
Q2) Reversal of a previous inventory write down is not advocated in IAS 2.
A)True
B)False
Q3) The valuation of inventories may be on the basis of:
A)the lower of direct cost and recoverable amount.
B)regular revaluations by classes of inventories undertaken at the end of the period.
C)the weighted average of market value and absorption cost over the period.
D)the lower of cost and net realisable value.
Q4) Discuss why LIFO cost-flow method is not permitted under IAS 2 when it is supported in the US in periods of rising prices.
Q5) Explain the circumstances where borrowing costs are permitted to be included in the cost of inventories?
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Chapter 8: Accounting for Intangibles
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Q1) Which of the following combination best demonstrates the value of goodwill?
I.purchase consideration of subsidiary
II.book value of net assets held by subsidiary
III.fair value of net identifiable assets
IV.contingent liabilities
A)I less II
B)I less III
C)I less (II-IV)
D)I less (III-IV)
Q2) IAS 38 states that intangible assets:
A)may not be revalued and must be amortised over their useful lives.
B)are only able to be revalued if they have been internally generated and there is an active market for them.
C)may only be revalued to their fair value as assessed by a licensed valuer.
D)may be measured by using either the cost model or the revaluation model.
Q3) Discuss the factors considered to determine amortisation of deferred development costs.
Q4) Outline the requirements of IAS 38 on recognition and measurement of research and development activities.
Q5) Explain the difference between an 'infinite life' and an 'indefinite life'.
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Chapter 9: An Overview of Accounting for Liabilities
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Q1) Discuss the substance-over-firm approach in IAS 32 Financial Instruments.
Q2) What is the appropriate treatment for convertible notes in accordance with IAS 32 Financial Instruments: Presentation?
A)as a financial liability
B)as equity
C)as part debt and part equity
D)as a financial liability and disclosure of conversion option
Q3) Some researchers have found that firms can benefit from being in financial distress.
A)True
B)False
Q4) An entity shall classify a liability as current when it holds the liability primarily for the purpose of trading.
A)True
B)False
Q5) When determining whether a liability exists,the intentions or actions of management need to be taken into account.
A)True B)False
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Chapter 10: Accounting for Leases
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Q1) If there is reasonable assurance at the inception of the lease that the lessee will obtain ownership of the assets at the end of the lease term,then the leased asset should be depreciated over the lease term.
A)True
B)False
Q2) In determining if the risk and rewards of ownership have been transferred,IAS 17 states the following would indicate a finance lease is in effect:
A)Ownership of the assets transfers at the end of the lease term for a variable payment equal to its then fair value.
B)Contingent rents exist.
C)The lease is non-cancellable by the lessor.
D)All of the given answers are correct.
Q3) Discuss the presentation and disclosure requirements of operating leases under IAS 17.
Q4) If the lease arrangement contains a bargain purchase option,it is reasonable to assume that the risks and rewards of ownership are transferred to the lessee.
A)True
B)False
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Chapter 11: Share Capital, Reserves and Share Options
Employee Bonus Schemes
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Q1) Ordinary shares receive low dividends because they do not perform very well. A)True
B)False
Q2) Preference shares may be classified as a liability,an equity item,or have features of both.Explain with examples,how to determine such a classification.
Q3) An effect of a bonus issue to all shareholders is to:
A)increase the total amount of shareholders' funds.
B)make the amount that was previously recorded as retained earnings no longer available for the payment of cash dividends.
C)alter the current shareholders' proportionate share of the company's net assets.
D)increase the total assets of the company.
Q4) Where there is a redemption of preference shares 'out of profit':
A)The redemption is recorded in the appropriations section of the statement of comprehensive income.
B)The redemption is recorded as an expense.
C)The redemption is recorded as a liability and is amortised over a maximum of five years.
D)The redemption is not recorded in the current period.
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Chapter 12: Accounting for Financial Instruments
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Q1) David Plc acquired a parcel of 50 000 call options in Goliath Plc on 1 November 2012.The price of the options was 1.50 each and they may be exercised any time prior to 30 June 2015 at exercise price of 30.On the same date the market price for Goliath Ltd shares is 25.On David Plc's reporting period date - 30 June 2013 - the company is still holding the options.The market price of the options at that time was 1.80 each and the share price is 27. What is the financial effect of the above transactions on David Ltd's statement of comprehensive income for the year ending 30 June 2013?
A)Increase by 15 000
B)Decrease by 15 000
C)Increase by 100 000
D)Decrease by 100 000
Q2) Financial assets do not include:
A)cash.
B)notes receivable.
C)an equity instrument of another entity.
D)inventories.
Q3) An equity instrument of another entity is classified as a 'financial instrument'.
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Chapter 13: Revenue Recognition Issues
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Q1) Under the IASB Conceptual 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.
Q2) IASB (2011)Revenue from Contracts with Customers requires revenues to be measured in terms of historical cost to improve reliability.
A)True
B)False
Q3) Explain the difference between revenue and gains as defined in the IASB Conceptual Framework.
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Chapter 14: The Statement of Comprehensive Income and Statement of Changes in Equity
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Q1) Discuss the components required to be disclosed in the statement of changes in equity as prescribed in IAS 1 Presentation of Financial Statements.
Q2) An entity is required in IAS 1 to produce:
A)a statement of changes in equity.
B)a statement of financial position.
C)a statement of comprehensive income.
D)all of the given answers.
Q3) If it is found that an error had been made in a prior period:
A)The error should be rectified by including the item of income or expense in the period in which the error was discovered.
B)IAS 1 does not cover this concept and so no entry is required.
C)IAS 8 requires that errors are corrected via an adjustment to opening balance of retained earnings.
D)Material errors discovered in the current reporting period must be included in that period's statement of comprehensive income, while non-material errors may be corrected with an adjustment to opening retained earnings.
Q4) Discuss the impact changes in accounting policies can have on users of the financial statements.
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Chapter 15: Accounting for Income Taxes
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Q1) Some items are typically not allowable tax deductions but are recognised as an expense for accounting purposes.Which of the following items are of that type?
A)research and development costs
B)warranty costs
C)sick leave payments
D)goodwill amortisation
Q2) 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
Q3) Non-deductible expenses in the current or subsequent periods results in a deferred tax asset.
A)True
B)False
Q4) Deferred tax assets arise as a result of tax losses.Losses incurred in previous years can always be carried forward to offset taxable income derived in future years.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) A statement of cash flows is a forecast of net cash flows from operating,investing and financing activities.
A)True
B)False
Q2) Bulldogs Plc had the following activities related to their financial operations:
Paid 1 125 000 for the early retirement of convertible notes (amortised cost of 1 110 000)
Paid cash dividends of 93 000.Preference shares with carrying amount of 120 000 were converted to ordinary shares.
What is net cash used in financing activities for the year ended 30 June 2014?
A)( 1 017 000)
B)( 1 032 000)
C)( 1 125 000)
D)( 1 218 000)
Q3) In accordance with IAS 7 Statement of Cash Flows,cash receipts from sales of property,plant and equipment are classified as cash flows from operating activities.
A)True
B)False
Q4) Describe the application of IAS 7 to interest and dividends received.
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Chapter 17: Events Occurring After the Reporting Date
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Q1) Requirements regarding events after the reporting date are contained in IAS 10 and Company Law.
A)True
B)False
Q2) Karingai Co Plc has been experiencing cash flow difficulties and sought a long-term loan from a merchant bank to enable it to restructure its financing from short-term to long-term debt.The loan has been approved by the bank after reporting date and the funds are expected to be received before the time of completion of the accounts.How should this event be reported according to IAS 10?
A)If the loan is material and the effect on the future financial performance of the entity is significant, IAS 10 requires the directors to disclose the event in the Director's Report and incorporate it into the financial statements.
B)The directors are required to disclose the event in the Statement of Directors' Responsibilities.
C)No note disclosure is required in this case.
D)The even should be disclosed in a note, the fact that it occurred after reporting date and its financial effect on the company should be provided.
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Chapter 18: Related-Party Disclosures
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Q1) IAS 24 provides guidance regarding the measurement of remuneration amounts for directors such that:
A)Remuneration should be measured at cost to the entity or related party and includes any money, consideration or employee benefits paid, payable or provided.
B)Where directly identifiable, the remuneration should be measured at cost; however, where the measurement of considerations or benefit requires an estimation, the amount should be reflected at fair value according to an arm's length transaction for a similar consideration or benefit.
C)Remuneration amounts should be disclosed at the fair value of the elements of the emoluments package offered, including any benefits or consideration that take the form of access to resources of the entity or its related parties.
D)Remuneration amounts should be disclosed at the net realisable value of the elements of the emoluments package offered.In the case of benefits or considerations that take the form of access to resources of the entity or its related parties, these should be disclosed at the deprival value to the relevant entity.
Q2) Discuss the current debate regarding the setting and disclosure of executive compensation.
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Chapter 19: Earnings Per Share
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Q1) Rose Ltd has a net income after tax of £3 400 000 for the year ended 30 June 2015.At the beginning of the period Rose Plc has 1 800 000 fully paid-up ordinary shares on issue.On 1 October 2014 Rose had issued a further 200 000 fully paid-up ordinary shares at an issue price of £5.00.On 1 May 2015 Rose Plc made a one-for-four bonus issue of ordinary shares out of retained earnings.The last sale price of an ordinary share before the bonus issue was £5.50.The basic earnings per share for the period ended 30 June 2014 was £2.00 per share.What is the earnings per share figure for the period ended 30 June 2015 and the comparative earnings per share for the previous year to be reported in the 2015 financial reports according to IAS 33?
A)current period (2015) £1.67; previous period (2014) £2.00
B)current period (2015) £1.34; previous period (2014) £2.50
C)current period (2015) £1.83; previous period (2014) £1.50
D)current period (2015) £1.40; previous period (2014) £1.60
Q2) If a bonus or rights issue is made at the prevailing market price of the shares then there is no bonus element in the issue.
A)True B)False
Q3) Describe the IAS 33 EPS disclosure requirements.
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Chapter 21: Further Consolidation Issues I: Accounting for
Intragroup Transactions
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Q1) Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts
Q2) In the absence of an election to be a 'tax consolidated group',the taxation authorities typically assess income earned by individual legal entities in an economic group and does not take into consideration consolidation adjustments required for group accounts.
A)True
B)False
Q3) 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
Q4) Intragroup profits are eliminated in consolidation to exclude intragroup transactions in the parent entity's financial statements. A)True
B)False
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Chapter 22: Further Consolidation Issues II: Accounting for
Non-Controlling Interests
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Q1) Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?
A)The requirement to eliminate the effects of intragroup transactions does not hold when there are non-controlling interests.
B)The non-controlling interest's share in the dividends paid or proposed by the subsidiary is not eliminated on consolidation.
C)The non-controlling interest's share of the profits of the subsidiary is calculated after adjustments to eliminate income and expenses of the subsidiary that are realised from the economic entity's perspective.
D)Management fees paid in an intragroup transaction are considered realised when determining non-controlling interests in a subsidiary.
Q2) Differentiate 'full goodwill method' from the 'partial goodwill method' in the presence of non-controlling interests in a subsidiary.Discuss the implications of permitting the use of either method in business combinations.
Q3) Discuss how the share capital and reserves of a non-controlling asset are determined at the date of the acquisition and post-acquisition changes in share capital and reserves.
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Chapter 23: Further Consolidation Issues III: Accounting for
Indirect Ownership Interest
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Q1) A Plc owns 75% of the issued capital of B Plc and B Plc owns 65% of the issued capital of C Plc.What is the total outside equity interest in C Plc?
A)48.75%
B)35%
C)25.75%
D)51.25%
Q2) In calculating indirect non-controlling interests,intragroup transactions need not be eliminated.
A)True
B)False
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
Q4) Describe the two multiple subsidiary acquisition types,based on the order of acquisition.
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Chapter 24: Accounting for Foreign Currency Transactions
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Q1) Which of the following items is a commonly used swap?
A)foreign currency swaps
B)options swap
C)investments in foreign operations swaps
D)foreign currency derivatives swaps
Q2) IAS 21 requires that the initial recognition of a foreign currency transaction be:
A)in the amount of the foreign currency.
B)at the closing rate at balance date.
C)at the rate the currency is expected to be exchanged at on the settlement date for the monetary asset or liability based on the current market price of futures contracts for the relevant foreign currency.
D)at the spot rate at the date of the transaction.
Q3) If an organisation enters a foreign currency swap it will effectively insulate itself against the effects of changes in the spot rates.
A)True
B)False
Q4) Discuss the situations in which the discontinuation of fair-value hedge accounting is to be done as provided for in IAS 39.
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Chapter 25: Translating the Financial Statements of Foreign Operations
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Q1) IAS 21 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at:
A)the spot rate.
B)the forward rate.
C)the market rate.
D)none of the given answers.
Q2) Outline the approach to be taken when translating the accounts of a foreign subsidiary; that is,the various rates to be used for the various components of the financial statements.
Q3) When consolidating financial statements of foreign operations,we use the same rate each year for goodwill,so that the amount recognised on consolidation will not fluctuate from year to year.
A)True
B)False
Q4) The amount of a foreign operation's post-acquisition retained earnings as translated into functional currency will depend on the amount translated from the statement of comprehensive income.
A)True
B)False
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Chapter 26: Accounting for Corporate Social Responsibility
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Q1) According to Gray,Owen and Adams,accountability involves:
A)the responsibility to provide an account of an entity's actions.
B)the expectation that entities will undertake responsibility for the financial and economic effects of their actions.
C)the responsibility to undertake certain actions (or to refrain from taking actions).
D)the responsibility to provide an account of an entity's actions and the responsibility to undertake certain actions (or to refrain from taking actions).
Q2) It is common for 'clean-up' costs to be excluded from traditional financial reports of mining firms because this undertaking is purely voluntary.
A)True
B)False
Q3) Explain how the move to sustainability accounting detracts from the entity assumption adopted in financial reporting.
Q4) What are the social and financial reporting implications of discounting environmental related liabilities?
Q5) Discuss the objectives for an integrated reporting framework.
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