Business Accounting
Midterm Exam
Course Introduction
Business Accounting introduces the fundamental principles and procedures of accounting as they apply to business organizations. The course covers the accounting cycle, including recording transactions, preparing financial statements, and analyzing financial information for decision-making purposes. Students will gain practical skills in understanding balance sheets, income statements, and cash flow statements, as well as insights into the importance of ethical practices and regulatory standards in accounting. By the end of the course, learners will be equipped with the essential tools to interpret and manage financial data, supporting effective business operations and strategic planning.
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) It is incorrect that under the Corporations Act 2001:
A) the accounting standards are deemed to be part of the Corporations Act
B) financial reports must comply with the accounting standards
C) the accounting standards need not be complied with if, in the opinion of the board of directors, this would not result in a true and fair view
D) if the financial statements and notes prepared in compliance with accounting standards would not give a true and fair view, then additional information necessary to give a true and fair view must be included in the notes to the statements
Answer: C
Q2) Under the Corporations Act the financial report consists of:
A) comprehensive income statement, balance sheet, statement of cash flow, statement of changes in equity, director's declaration, notes to the financial statements
B) comprehensive income statement, balance sheet, statement of changes in equity, cash flow statement
C) comprehensive income statement, balance sheet, statement of cash flow
D) comprehensive income statement, balance sheet, statement of changes in equity
Answer: A
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Page 3
Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) Which of these is not one of the major potential benefits of a conceptual framework?
A) More economical development of standards
B) Increased international compatibility of standards
C) Savings in auditing costs
D) None of the above, i.e., all are major potential benefits of a conceptual framework
Answer: C
Q2) Which statement is incorrect?
A) APB statement No. 4. 'Basic-Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises' was the US profession's first conceptual framework
B) The trend in accounting over many years has been to reduce disclosure in published reports
C) The double-entry bookkeeping system was developed in Italy during the 13<sup>th</sup> and 14<sup>th</sup> centuries
D) In earlier times many present-day transactions were not contemplated by accountants
Answer: B
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4
Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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32 Verified Questions
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Sample Questions
Q1) Depreciation and wages that have been accrued represent,respectively,expenses resulting from:
A) a decrease in an asset: a decrease in a liability
B) the using up of an asset: an increase in a liability
C) the using up of a liability: an increase in an asset
D) none of the above
Answer: B
Q2) Under the Framework a 'material' item must be:
A) likely to influence the decisions of users
B) unusual
C) large
D) all of the above
Answer: A
Q3) 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
5
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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) The receipt of cash or its equivalent from an income transaction is known as:
A) realisation
B) resolution
C) reception
D) recognition
Q2) Using the Framework criteria,explain why the point of sale is generally selected as the point at which income is recognised.
Q3) In the Framework,'probable' means:
A) greater than 50% certainty
B) 50% certainty
C) greater than 75% certainty
D) greater than 95% certainty
Q4) AASB 137 'Provisions,Contingent Liabilities and Contingent Assets' requires information about contingent liabilities to be disclosed in a note to the financial statements where the probability of a future sacrifice of economic benefit is:
A) higher than remote
B) above 20%
C) between 25% and 50%
D) above 50%
Chapter 5: The Choice of Accounting Methods
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Sample Questions
Q1) The treatment that is likely to lead to a higher reported net profit in the short term than otherwise would be the case is:
A) underestimating an increase in the provision for long-service leave
B) treating expenses as assets
C) failure to sufficiently provide for doubtful debts
D) the deferral of advertising costs until the next accounting period
Q2) Explain the meaning of creative accounting and discuss various factors that tend to limit its operation.
Q3) The choice of accounting methods and/or their use to achieve a particular outcome in the financial reports is known as:
A) environmental accounting
B) creative accounting
C) imaginative accounting
D) bottom of the harbour accounting
Q4) In relation to agency theory the statement that is not correct is:
A) The self-interest of various parties is often in conflict
B) It assumes that managers act opportunistically all of the time
C) It assumes that individuals act primarily to advance their own self-interest
D) None of the statements is incorrect, i.e., all are correct statements
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Chapter 6: The Balance Sheet: an Overview
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Q1) Which of these is not included in the SAC2 description of information to be disclosed about the financial position of the reporting entity? Information about its:
A) capacity for adaptation
B) operating capability
C) control over resources
D) financial structure
Q2) Additional line items to those disclosed in accordance with paras 68 and Aus68.1 of AASB 101 may be included on the face of the statement of financial position when disclosure of these items is assessed to be relevant to an understanding of the entity's financial position.This assessment is based on which of the following?
A) The nature and liquidity of assets
B) The function of the assets within the entity
C) The amounts, nature and timing of liabilities
D) All of the above
Q3) Identify and discuss the requirements concerning the classification of assets contained in AASB 101.
Q4) Identify and discuss the requirements concerning the classification of liabilities contained in AASB 101.
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Chapter 7: Accounting for Current Assets
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Sample Questions
Q1) Allowance for doubtful debts is a/an:
A) liability account
B) expense account
C) contra expense account
D) contra asset account
Q2) AASB 108 requires that changes to accounting estimates be dealt with prospectively.This means that the effect of a past overestimate of doubtful debts expense is:
A) recognised in the current reporting period
B) used to increase this periods estimated expense
C) both A and B
D) neither A nor B
Q3) The inventory valuation rule 'the lower of cost and net realisable value' cannot be used with which of these methods?
A) Perpetual inventory method
B) Periodic inventory method
C) Last-in-first-out method
D) None of the above, i.e., it can be used with all of the methods
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 AASB 123 'Borrowing Costs',a qualifying asset is defined as:
A) an asset that takes more than twelve months to complete
B) an asset that necessarily takes a substantial period of time to get ready for its intended use or sale
C) a long-term construction project for the construction of ships, dams, roads or buildings
D) an asset that necessarily takes more than two years to complete
Q2) A subsequent increase in the value of goodwill that has previously been written off as an impairment loss:
A) must not be reversed in subsequent periods
B) must be reversed in the period in which the value has changed
C) is allocated over the other assets in the cash generating unit in proportion to their carrying amounts
D) all of the above
Q3) AASB 136 requires that assets are carried at no more than their recoverable amount.Outline the accounting treatment required to recognise an impairment loss.In your answer discuss the subsequent reversal of an impairment loss.
Q4) Explain and discuss how donated assets should be recorded in the accounts.
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Page 10
Chapter 9: Accounting for Company Income Tax
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Sample Questions
Q1) Accounting standards require disclosure of the amount of:
A) deferred tax expense (or revenue) relating to changes in tax rates or tax laws
B) current tax expense (or revenue)
C) any adjustments for the current tax of prior reporting periods
D) all of the above
Q2) Examine the following equations.
For assets:
(a)carrying amount < tax base gives rise to deferred tax liability
(b)tax base < carrying amount gives rise to deferred tax asset
For liabilities:
(c)carrying amount < tax base gives rise to deferred tax asset
(d)tax base < carrying amount gives rise to deferred tax liability
A) Only (a) and (c) are correct
B) Only (b) and (d) are correct
C) All are correct
D) (d) is correct
Q3) Discuss the results of empirical research that examines whether tax-effect accounting should continue to be required.
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Chapter 10: Accounting for Investments
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Sample Questions
Q1) On 1 January 20X0 Jesse Company purchased a 'small holding' of 1500 shares in Nulla Ltd for a fair value of $2000.On 1 January 20X1 the fair value of the shares was assessed as having risen to $2500.What journal entry would be made on 1 January 20X1 to recognise the change in value?
A) Debit investment in Nulla Ltd $500; credit gain on investment revaluation, $500
B) Debit investment in Nulla Ltd $500; credit investment revaluation reserve, $500
C) No entry is necessary
D) None of the above
Q2) The accounting standard that applies to financial assets that consist of 'small holdings' of shares held as non-current assets is:
A) AASB 116 'Property, Plant and Equipment'
B) AASB 136 'Impairment of Assets'
C) AASB 139 'Financial Instruments: Recognition and Measurement'
D) All of the standards apply
Q3) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
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Page 12
Chapter 11: Accounting for Intangible Assets
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Sample Questions
Q1) The main reason why accounting for intangible assets is more difficult than accounting for other assets is:
A) intangible assets are inherently inert and their value can grow or dissipate quickly
B) intangible assets may be developed internally
C) intangible assets do not have physical substance
D) all of the above are equally important reasons why accounting for intangible assets is more difficult than accounting for other assets
Q2) Which of these accounting standards applies to goodwill?
A) AASB 3
B) AASB 136
C) AASB 138
D) All of the above
Q3) When the value of an intangible asset is impaired,the change in the value of the asset is:
A) recognised as a charge in the statement of comprehensive income
B) recognised as a charge to equity
C) amortised over a period not exceeding 20 years
D) all of the above
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13
Chapter 12: Accounting for Leases
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Sample Questions
Q1) Examine the following statements:
(a)Under an operating lease,substantially all the risks and benefits of ownership Of the leased asset are transferred to the lessee
(b)A finance lease is normally non-cancellable
(c)Under a finance lease,legal ownership of the asset must be transferred To the lessee at the end of the lease
(d)The term of an operating lease usually covers 75% or more of the Economic life of the leased asset
A) Only (b) is correct
B) Only (a), (b) and (c) are correct
C) Only (a) and (d) are correct
D) All are correct
Q2) Leases described as 'off balance sheet' are:
A) operating leases
B) finance leases
C) in effect a secured loan
D) A and C above
Q3) Discuss the implications of the proposal that operating/finance lease distinction be dropped.
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Page 14
Chapter 13: Accounting for Employee Benefits
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Sample Questions
Q1) The discount rate to be used when estimating future cash outflows relating to an employee benefit that is expected to be paid out in 20 years by a Sydney company should be restricted to:
A) the current yield on 20 year Australian Government Bonds
B) the current yield on high quality bonds
C) no estimation of future cash outflows is required
D) none of the above
Q2) While on a salary of $150 000,C.Cronk retired from Footballers R US after 35 years of service.He was entitled to 13 weeks accrued long service leave for every 15 years of service.How much long service leave pay was he entitled to on his retirement? He had not previously taken any long service leave.
A) $87 499
B) $75 000
C) $37 500
D) None of the above
Q3) Discuss the rationale for AASB 119 recognising long service leave as a liability during the preconditional period.How would you account for the possibility that an employee may not remain in your employ long enough to collect long service leave.
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Chapter 14: Accounting for Financial Instruments
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Sample Questions
Q1) Discuss the disclosure requirements in AASB 7 Financial Instruments Disclosure and AASB 132 Financial Instruments Presentation.
Q2) 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
Q3) Financial instruments include accounts receivable,accounts payable,futures contracts,equity securities and options.Which of the following statements is correct?
A) Accounts receivable, accounts payable and options are primary financial instruments
B) Equity securities and futures contracts are primary financial instruments
C) Accounts receivable and accounts payable are derivative (secondary) financial instruments
D) None of the above is correct
Q4) Identify and explain the methods required under AASB 139 to account for a futures contract both at its inception and for subsequent changes in its fair value.
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16
Chapter 15: Equity
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Sample Questions
Q1) The three broad components of equity for a company are:
A) public equity, contributed equity, government equity
B) ordinary shares, preference shares, options
C) share capital, retained earnings, reserves
D) ordinary shares, preference shares, reserves
Q2) Explain the nature of compound financial instruments and how to account for them in Australia.
Q3) Convertible notes and other securities that are legally classified as debt but which contain elements of equity are known by the term:
A) share options
B) equity instruments
C) derivatives
D) compound financial instruments
Q4) A transfer from retained earnings would have created a/an:
A) asset revaluation reserve
B) foreign currency translation reserve
C) general reserve
D) share premium reserve
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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) When items are required to be classified as extraordinary,which of the following is/are not true?
A) Users of financial statements are able to make more accurate predictions of future performance
B) Management is able to classify gains as operating income and losses as extraordinary items
C) It allows managers to misclassify expenses as extraordinary
D) None; all are true
Q3) AASB 118 specifies which of these as the basis for measuring revenue?
A) Historical cost
B) Fair value of the consideration received or receivable
C) Nominal amount
D) Replacement cost
Q4) Define income and explain how it differs from revenue.
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Chapter 17: The Cash Flow Statement
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Q1) 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
Q2) AASB 107 provides for which method of reporting cash flows from operating activities?
A) Either the direct or the indirect method
B) The direct method
C) The indirect method
D) The working capital method
Q3) The approach to presenting cash flows from operating activities where reported net profit is adjusted for non-cash income statement items and changes in non-cash working capital accounts is known as:
A) the direct approach
B) the adjustment approach
C) the indirect approach
D) none of the above
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Page 19
Chapter 18: Financial Reporting: Segment Reporting, value
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Sample Questions
Q1) 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:
A) 19.4%
B) 21.9%
C) 16.8%
D) 4.83%
Q2) Discuss the benefits of the 'management approach' adopted by AASB 8.
Q3) AASB 8 'Operating Segments' requires entities to report:
A) segments that correspond to internal management reports
B) segment information that is more consistent with other parts of their annual reports
C) more segment information in their interim financial statements
D) all of the above
Page 20
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Chapter 19: Further Financial Reporting Issues
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Sample Questions
Q1) Discuss how modern electronic means of communication,such as e-mail and the Internet,might assist continuous reporting and interim reporting requirements.Are there any possible disadvantages in using such electronic means of communication?
Q2) Which of the following events occurring after the reporting date may need to be disclosed in the financial statements of a business for that previous period?
A) The bankruptcy of a major debtor
B) A loss caused by fire or flood
C) The announcement of a business merger
D) All of the above may need to be disclosed
Q3) Why have accountants always put so much emphasis on the concept of materiality? How does this concept affect accountants,if at all,in their day-to-day work and in the preparation of periodical financial reports?
Q4) 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
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Page 21
Chapter 20: Accounting for the Extractive Industries
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Q1) Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources states that exploration and evaluation costs of a mining operation:
A) can be recognised as expenses or carried forward as an asset depending on the circumstances of the particular operation B) must be accounted for in accordance with Australian Accounting Standard AASB 116 'Property, Plant and Equipment' C) must be recognised as expenses as they are incurred D) must be carried forward as an asset until production commences
Q2) AASB 6 allows exploration and evaluation costs to be capitalised under certain circumstances.These include:
A) when the costs are expected to be recouped B) when the rights to tenure of the area of interest are current C) when a reasonable assessment of the viability of the area of interest can be made D) all of the above
Q3) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
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Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) The completed-contract method for recognising profit on a construction contract is a conservative method of profit recognition because:
A) it results in construction costs being written-off as they are incurred
B) it does not anticipate profit
C) it recognises progress billings as revenue when the cash is received
D) all of the above
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) Real estate assets owned by a business should be classified:
A) as inventories
B) as either inventories or non-current assets depending on the purpose(s) for which they are held
C) in a separate classification for real estate only
D) as non-current assets
Page 23
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Chapter 22: Accounting for Agricultural Activity
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Q1) Greenview Dreams Ltd has an orchard of mango trees with an estimated fair value at 1 January 20X1 of $1 600 000.During the year ended 31 December 20X1 mangoes with a fair value of $300 000 were picked and they were still on hand at the end of the year.Costs of picking,sorting,packing and storage totaled $125 000.The mangoes were sold later in 2012 for $430 000.On 31 December 20X1 the mango orchard had an estimated net realisable value of $1 750 000.The total profit from operations for the 20X1 year is:
A) $325 000
B) $305 000
C) $575 000
D) $425 000
Q2) In what ways is agricultural activity different from other forms of assets? In what ways are they similar to other forms of assets? How do these differences,and similarities,affect accounting for agricultural activity?
Q3) List three significant items of information that Australian Accounting Standard AASB 141 'Agricultural Activity' requires to be shown in the annual report and financial statements specifically of a primary production business.Explain why disclosure of each of these items is considered to provide useful information to investors.
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Chapter 23: Accounting for Superannuation Plans
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Q1) Discuss this statement,'Property,Plant and Equipment held by the fund for its intended use in the operation of the fund and not for sale or investments should not be measured at net market value'.
Q2) A superannuation fund to which employees can make voluntary contributions so as to increase the value of their benefits is known as a/an:
A) defined contribution fund
B) defined benefit fund
C) externally managed fund
D) contributory fund
Q3) Discuss the roles of APRA,Asic and the ATO in the regulation of the superannuation industry.
Q4) The inclusion of a report of the trustees of a superannuation plan is:
A) required by AAS 25
B) the same as an actuarial report
C) recommended by the ASFA
D) not relevant for a self-managed plan
Q5) Explain the essential features of a defined benefit,externally managed,non-contributory superannuation plan whose benefits are not vested.
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Chapter 24: Accounting for Financial Institutions
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Q1) Under AASB 4 'Insurance Contracts' the insurer at each reporting date must determine whether its insurance liabilities are understated; if they are,the amount should:
A) be recorded a liability
B) be charged as an expense
C) be disclosed in the notes
D) be disclosed as a provision
Q2) The Income statement of a bank should show its assets:
A) all listed in order of liquidity
B) divided under the headings of current assets and non-current assets
C) all as current assets
D) all as current assets except for property, plant and equipment
Q3) A general insurer should usually record as liabilities at the end of each reporting period the estimated amounts of:
A) claims not yet lodged but arising from events occurring before the end of the reporting period
B) claims lodged but not yet paid
C) claims lodged but the amount of the liability is uncertain
D) all of the above
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Chapter 25: Financial Reporting in the Public Sector
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Q1) 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
Q2) Compare and contrast the main features of 'fund accounting' and of 'accrual accounting' as they apply to the government (or public)sector of the economy.
Q3) When the legislation that creates a public sector entity also specifies particular accounting methods to be used or disclosures to be made,these requirements:
A) are in addition to those required by AASB's
B) allow the government entity to select the method that best reflects the economic circumstances
C) are superceded by the requirements of AASB standards
D) may be disregarded if the requirements of AASB 101 are met
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) Place these steps in the development of an accounting standard by the IASB in the order in which they occur in practice.
i.Developing an exposure draft for public comment
ii.Publishing a discussion paper for public comment
iii.Establishing an advisory committee
iv.Approval by the IASB
A) i, ii, iii, iv
B) iii, i, ii, iv
C) ii, iii, i, iv
D) iii, ii, i, iv
Q2) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
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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Q1) The 'spot' rate of exchange for foreign currencies is:
A) the rate at which currencies can be exchanged in a particular place (e.g., in Sydney or in New York)
B) the rate of exchange between the Australian dollar and the US dollar
C) the rate at which currencies can be exchanged on the New York foreign exchange market
D) the rate at which currencies can be exchanged immediately
Q2) An effective foreign currency hedging transaction will:
A) largely eliminate the risk of loss but allow a gain to be made on a foreign exchange transaction
B) require the services of a banker or similar financial intermediary
C) largely eliminate both the risk of loss and the possibility of gain on a foreign exchange transaction
D) involve both A and C above
Q3) 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
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Chapter 28: Accounting for Corporate Social Responsibilities
Available Study Resources on Quizplus for this Chatper
21 Verified Questions
21 Flashcards
Source URL: https://quizplus.com/quiz/71413
Sample Questions
Q1) Describe three means by which governments may take action that is likely to require businesses to act in a socially responsible manner.For each of these three means,explain what considerations are likely to influence a government decision to use that particular method in preference to the others.
Q2) Describe two possible approaches to the reporting of socially responsible activities by businesses.Explain the difficulties or weaknesses in these approaches.Then suggest ways in which these difficulties or weaknesses might be overcome or reduced in each case.
Q3) The statement concerning social responsibility reporting in Australia that is not correct is:
A) Australian companies have been at the forefront of reporting and are well ahead of their counterparts in Europe and the US
B) since the 1980s there has been an increasing trend in the quantity and quality of disclosure
C) companies tend to disclose more positive than negative information
D) none of the above, i.e., all are correct statements
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
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) 'Society-imposed costs' of unethical behaviour include:
A) destruction of professional reputation
B) penalties imposed through legal proceedings
C) penalties imposed by disciplinary proceedings by a relevant professional body
D) all of the above
Q2) Briefly describe the classes of teleological theories that have been used to examine ethical behaviour.
Q3) Ethical parochialism:
A) assumes that ethical behaviour should protect the individuals belonging to the 'in group'
B) suggests that the behaviour of individuals should be constrained by the law and the conventions of fair play
C) is evidenced when individuals seek to maximise their own utility
D) suggests that ethical behaviour should be concerned with the good of all humankind and that individuals are all of equal value
Q4) Briefly describe three classes of deontological theories that have been used to examine ethical behaviour.
Q5) Should accountants act ethically? Explain the reasons for your answer to this question.
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