Business Accounting
Pre-Test Questions
Course Introduction
Business Accounting provides an in-depth introduction to the principles and practices of accounting as applied in business environments. Students will learn fundamental concepts such as double-entry bookkeeping, preparation and analysis of financial statements, and the role of accounting in decision-making. The course covers topics including asset management, liabilities, equity, revenue recognition, and expense matching. Emphasis is placed on understanding the accounting cycle, internal controls, and how accounting information supports business operations and strategic planning. This foundation equips students with the skills necessary to analyze financial performance, ensure regulatory compliance, and support organizational goals.
Recommended Textbook Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Q1) The AASB has responsibility for making accounting standards applicable to:
A) entities coming under the Corporations Act, entities in the public sector and the remainder of the non-corporate sector entities
B) entities coming under the Corporations Act
C) entities coming under the Corporations Act and entities in the public sector
D) none of the above
Answer: A
Q2) Discuss the role of the accounting bodies in the regulation of Australian accounting practice.
Answer: Not Answer
Q3) The Corporations Act 2001 requires that the financial reports must give:
A) a true and fair view of the financial position and performance and of the accounting standards
B) a true and fair view of the reporting position
C) a true and fair view of the accounting standards
D) a true and fair view of the financial position and performance
Answer: D
Q4) Explain how accounting standards are currently enforced in Australia.
Answer: Not Answer
Page 3
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Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) In establishing external reporting requirements,the Corporations Act distinguishes between:
A) large and small proprietary companies
B) service and non-service entities
C) legal and non-legal entities
D) reporting and non-reporting entities
Answer: A
Q2) From 1 January 2005 the Australian conceptual framework consists of:
A) SAC 1-2 and the IASB conceptual framework
B) SAC 1-4 and the IASB conceptual framework
C) the IASB conceptual framework
D) none of the above
Answer: A
Q3) Which of these is a constraint on financial reporting rather than a qualitative characteristic?
A) Relevance
B) Comparability
C) Timeliness
D) Reliability
Answer: C
Page 4
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) Is taxation an expense under the Framework? Discuss.
Answer: Taxation is not considered an expense under the Framework. Expenses are typically defined as the costs incurred in the process of generating revenue, such as salaries, rent, utilities, and supplies. Taxation, on the other hand, is a mandatory payment to the government based on income, property, or goods and services. While taxation does reduce the amount of profit or income available to a business or individual, it is not considered an expense in the traditional accounting sense. Instead, taxation is typically accounted for separately on financial statements and is often categorized as a liability. Therefore, while taxation does impact the financial position of an entity, it is not classified as an expense under the Framework.
Q2) Under the framework financial information that assists in either confirmation of past predictions or in making new predictions is:
A) relevant
B) timely
C) comparable
D) none of the above
Answer: A
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) In the Framework,'probable' means:
A) greater than 50% certainty
B) 50% certainty
C) greater than 75% certainty
D) greater than 95% certainty
Q2) It is a conventional accounting practice to recognise a doubtful debts expense when the probability of a decrease in economic benefits is:
A) more than 90% likely
B) less than 50% likely
C) more than 60% likely
D) beyond a reasonable doubt
Q3) Which of the following provides an example of measurement based on a nominal scale?
A) Postcode
B) Temperature using centigrade
C) Temperature using Fahrenheit
D) The outcome of an election process
Q4) Using the Framework criteria,explain why the point of sale is generally selected as the point at which income is recognised.
6
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Chapter 5: The Choice of Accounting Methods
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Q1) Explain the income smoothing hypothesis.In your answer discuss the reluctance of Chief Financial Officers to use accounting policy choice to achieve income smoothing post-Enron.
Q2) 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
Q3) During the conceptual framework period of accounting standard setting in Australia,which of the following is most correct?
A) Political considerations completely disappeared as a factor in choosing between accounting methods
B) Arguments by business in relation to proposed changes to standards were based on consideration of the conceptual framework rather than on self-interest
C) It became possible to introduce standards that were less popular with the business community
D) None of above is correct
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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) AASB 101 allows which of these statements of financial position formats?
A) Current/non-current format
B) Order-of-liquidity format
C) A mixed basis of presentation using both the current/non-current basis and the order-of-liquidity format for different asset groups
D) All of the above are allowable formats.
Q3) Australian standard setters have adopted the view that:
A) there should be some flexibility in the format of financial statements
B) companies should use a fixed format when preparing financial statements
C) Schedule 5 provides an example of a flexible format for preparers of financial statements
D) the statement of financial position is merely a link between successive income statements
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Page 8
Chapter 7: Accounting for Current Assets
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Q1) Under the perpetual inventory system,the accounting entry to record a write-down of $600 of various inventory items from cost to net realisable value is:
A) debit cost of goods sold $600; credit inventory $600
B) debit inventory $600; credit cost of goods sold $600
C) debit inventory $600; credit bank $600
D) debit cost of goods sold $600; credit bank $600
Q2) Explain the effects on the financial reports of the FIFO cost flow assumption in a period of rising prices and discuss the arguments that have been raised for and against the use of this assumption to value inventory.
Q3) When merchandise is in transit on balance date and has been shipped FOB destination,it should be included in the inventory of:
A) the buyer
B) the seller
C) the carrier
D) it does not need to be included in any parties' inventory
Q4) Discuss the disclosures relating to inventory required by AASB 102.Include a discussion on the disclosures required by not-for-profit entities.
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) Under AASB 116 if an item of property,plant and equipment is acquired for cash,the cost includes:
A) the purchase price after deducting trade discounts and rebates
B) the insurance premium paid to cover the asset for the first 12 months of its life
C) any import duties
D) all of the above
E) both A and C
Q2) Which statement concerning depreciation is correct?
A) Land is depreciated
B) Assets that have increased in value should still be depreciated
C) Charging depreciation provides cash for asset replacement
D) None of the statements is correct
Q3) Which factors should be taken into account when selecting a depreciation method?
A) The profit or loss for the year
B) Whether the asset has been re-valued
C) The amount that can be claimed as a tax deduction
D) None of the above
Q4) Should borrowing costs incurred during the construction period of an asset be expensed or capitalised? Discuss.
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Chapter 9: Accounting for Company Income Tax
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Q1) Consider each of the following separate situations.State whether each gives rise to a deferred tax asset (DTA)or a deferred tax liability (DTL).Give reasons for your answer and also indicate why and when any DTA or DTL will be reversed in the accounting records.
(i)Depreciation for accounting purposes exceeds depreciation allowed for income tax purposes
(ii)A provision for doubtful debts has been made for the first time (iii)Goodwill is being amortised each year
(iv)A loss has been incurred,for both accounting and taxation purposes,but the company expects to earn profits in each of the next two years
Q2) Discuss the results of empirical research that examines whether tax-effect accounting should continue to be required.
Q3) When calculating income tax expense under the statement of financial position approach to income allocation,which of the following formulae is used?
A) Income tax payable minus deferred income tax expense
B) Current income tax expense plus deferred income tax expense
C) Deferred income tax expense minus income tax payable
D) Temporary differences plus permanent differences
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11
Chapter 10: Accounting for Investments
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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) On 1 July 20X0 Myall Ltd acquired 25% of the voting shares of Kenny Company for $400 000 in cash.On 30 June 20X1 Kenny Company paid a total dividend to its shareholders of $40 000.The journal entry made in Myall Ltd's accounts to record the receipt of the dividend is:
A) debit cash at bank $10 000; credit investment in K Company $10 000
B) debit cash at bank $10 000; credit dividend income $10 000
C) debit cash at bank $40 000; credit dividend income $40 000
D) debit cash at bank $40 000; credit Investment in K Company $40 000
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Chapter 11: Accounting for Intangible Assets
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Q1) Under AASB 138,the cost of identifiable intangible assets that are purchased separately is:
A) the purchase price plus all cost directly attributable to preparing the asset for its intended use
B) fair value at the date of acquisition
C) the sum of expenditure incurred from the date the intangible assets first meet the recognition criteria
D) none of the above
Q2) Purchased computer software should be:
A) recognised as an asset and recorded at cost
B) amortised over its useful life
C) subject to an impairment test
D) all of the above
Q3) Compare the costs likely to be recorded for internally developed patents with those associated with a patent purchased in an arm's length transaction.
Q4) Distinguish between identifiable and unidentifiable intangible assets and explain how this distinction has affected the broad accounting treatment in Australia for each.
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13
Chapter 12: Accounting for Leases
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Q1) A 'sale-and-leaseback' transaction:
A) can be classified as neither a finance lease nor an operating lease
B) is always classified as a finance lease
C) can be classified as either a finance lease or an operating lease
D) is always classified as an operating lease
Q2) 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
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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Q1) In Australia,the attractiveness of salary packaging is being reduced by which of the following factors?
A) Fringe benefits tax which taxes the employer on non-cash benefits paid to the employee
B) The decreasing difference between personal tax rates and the company tax rate
C) Non-cash salary being taxable in the hands of the employee
D) All of the above
Q2) Which of the following is excluded from the scope of post-employment benefit considered by AASB 119?
A) Superannuation
B) Termination benefits
C) Administrative support
D) Free travel
Q3) Sick leave entitlements should be reflected as a liability in accordance with AASB 119 when:
A) it is non-accumulating sick leave
B) it is accumulating sick leave which is vesting
C) it is accumulating sick leave which is non-vesting
D) never
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Page 15
Chapter 14: Accounting for Financial Instruments
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Q1) Corine Ltd,a trader bought a December put option for 10 $100 000 10% treasury bonds at a premium of $3.95 on January 1,2010.Year end for Corine is 30 June when the price for a December put option for $100 000 10% treasury bonds is $3.50. What was the initial journal entry to record the option?
A) Dr Investment in options contract \(\quad\$ 39500\) CrCash at Bank\(\quad\$ 39500\)
B) Dr Investment in options contract \(\quad \$ 3950\) Cr Cash at Bank \(\quad\$ 3950\)
C) \(\begin{array}{lr}
\text { Dr } \quad \text { Cash at Bank } & \$ 39500 \\ \text { Cr Investment in ootions contract } & \$ 39500 \end{array}\)
D) \(\begin{array} { c c c }
\text { Dr } \text { Cash at Bank } & \$ 3950 \\
\text { Cr Investment in options contract } & \$ 3950 \end{array}\)
Q2) What is meant by an 'interest rate swap'? Illustrate your answer with a simple example of how such a swap operates and how it would affect the parties concerned.Why might businesses engage in an interest rate swap?
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Page 16
Chapter 15: Equity
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Q1) Discuss the arguments against recognising share options as an expense in the period in which the employee provides services.
Q2) Debt instruments that include an option to convert them to equity under specified conditions are known as:
A) preference shares
B) convertible notes
C) options
D) rights
Q3) Explain the requirements of AASB 101 as they relate to the presentation and disclosure of equity.
Q4) Which of the statements is incorrect? Under a compensatory compared to a non-compensatory plan to allow employees to acquire shares in their company:
A) the offer is likely to include specific performance hurdles
B) the offer will be required to be taken up immediately
C) the number of options offered will differ among individual employees
D) none of the statements is incorrect
Q5) Distinguish between compensatory and non-compensatory share option plans.How does AASB 2 suggest that each be accounted for?
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Chapter 16: The Income Statement
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Q1) In the United States,SFAS 130 requires which profit figure to be disclosed?
A) Profit after tax after applying all other accounting standards
B) The comprehensive income figure which includes all income and expenses that have previously bypassed the profit calculation after tax and been taken directly to equity
C) Neither A nor B
D) Both A and B
Q2) Explain and discuss how profit results may be manipulated if the rules allow the separate reporting of operating items and extraordinary items.Explain how accounting standard setters in Australia have responded to a perceived creative approach to extraordinary items in the previous standard.Do you think their response is justified?
Q3) A difference between the all-inclusive and the comprehensive income approaches to profit measurement is that:
A) the all-inclusive approach is broader than the comprehensive income approach
B) the two approaches have different treatments for prior-period adjustments
C) the comprehensive income approach includes all recognised changes in the carrying amount of assets and liabilities in the profit calculation
D) all are differences
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18
Chapter 17: The Cash Flow Statement
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Q1) Under AASB 107,it is not true that:
A) operating activities generally relate to transactions that are included in the income statement
B) cash flows are classified into operating, investing and financing groupings
C) each item in the externally presented income report that results in a cash flow is required to be disclosed separately in the cash flow statement
D) none of the above is untrue
Q2) Distinguish between the three concepts of funds which can be used to construct a cash flow statement: cash,working capital and total resources.Which concept do you think provides the most useful information for decision making?
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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19
Chapter 18: Financial Reporting: Segment Reporting, value
Added Statements, highlights Statements and
Financial Information
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Q1) Many companies,especially larger companies,now include a highlights statement in their annual reports.What are the main items likely to be included in such a statement? What are the perceived benefits of giving this information? Also explain any possible disadvantages of publishing a highlights statement.
Q2) A business reports the following in its financial statements:
\[\begin{array} { l r }
\text { Net profit before tax } & \$ 100 \\
\text { Interest expense } & 20 \\
\text { Income tax expense } & 30
\end{array}\] Its 'times interest earned' ratio is:
A) 6.0 times
B) 5.0 times
C) 3.5 times
D) 4.0 times
Q3) Discuss the benefits of the 'management approach' adopted by AASB 8.
Q4) What benefits is an investor likely to gain if a business presents financial information for its various separate major organisational divisions and/or geographical areas of operations? Are there any likely costs (direct or indirect)to the investor from the presentation of this information?
Page 20
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Chapter 19: Further Financial Reporting Issues
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Q1) Australian Accounting Standard AASB 134 requires that interim (such as half-yearly)financial reports:
A) need not show comparative figures for the previous period
B) must take account of material events expected to arise in the remainder of the financial year
C) need to include a condensed income statement and balance sheet only
D) must clearly indicate that it is to be read in conjunction with the most recent annual financial report
Q2) All of the following are usually seen as valid reasons for having different reporting standards for different business entities,except:
A) information needs of users may be different for different entities
B) costs of designing and installing an accounting information system may be different for different entities
C) investors in smaller entities generally do not read financial reports
D) users of the reports of some entities can obtain special purpose reports for their own use as required
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Chapter 20: Accounting for the Extractive Industries
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Q1) Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources does not identify which of the following phases in the exploitation of mineral,oil or gas deposits?
A) Production
B) Restoration
C) Construction
D) Evaluation
Q2) 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
Q3) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
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22
Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) The 'area' method of allocating the costs of real estate developments to individual lots:
A) should be used where lots with the same area have similar expected values
B) should be used where all lots have the same, or very similar areas
C) is always the preferred method
D) should always be used for industrial land
Q2) Where possible when allocating the costs carried forward to individual components of a property development the following method should be used:
A) specific identification method
B) area method
C) value method
D) none of the above
Q3) Explain the accounting procedure that should apply when a construction contract is expected to be completed at a loss.Use a simple numerical example to illustrate this procedure.How is this procedure affected if the completed-contract method is used for accounting for construction contracts rather than the percentage-of-completion method?
Q4) Compare and contrast the two types of contract distinguished by AASB 111,and provide an example of each.
Page 23
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Chapter 22: Accounting for Agricultural Activity
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Q1) Agricultural activity should:
A) sometimes be classified as non-current assets
B) always be classified as current assets
C) always be classified as non-current assets
D) always be classified as inventories
Q2) Which of the following activities do not fall under the auspices of AASB 141?
A) Circus animals
B) Greyhounds and horses held for racing
C) Investment in a carbon sink
D) All of the above
Q3) Australian Accounting Standard AASB '141 Agricultural Activity' requires disclosure of the following items of information:
A) the method of calculating the replacement cost of biological assets
B) the basis for classifying biological assets either as inventory or as plant and equipment
C) the nature of biological assets, including their physical quantity
D) all of the above
Q4) Describe the sustained-yield method and the standard method of measuring forestry assets.
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Chapter 23: Accounting for Superannuation Plans
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Q1) A change in the net market value of a superannuation plan's assets over a period is included in the income of:
A) all superannuation plans
B) defined contribution superannuation plans
C) self-managed superannuation plans
D) defined benefit superannuation plans
Q2) The general purpose financial reports of a superannuation plan should provide information to assist in answering the following question:
A) Who are the trustees?
B) Is the plan solvent?
C) What are the names of the professional advisers?
D) None of the above
Q3) 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'.
Q4) Discuss the differences between the requirements of ED179 and AAS 25.
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) The three broad categories of insurance do not include:
A) life insurance
B) fixed fee service contracts
C) fixed insurance services
D) general insurance
Q2) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
Q3) 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
Q4) An insurance risk:
A) is a financial risk
B) results in risk being transferred from the policy holder to the insurer
C) both A and B
D) none of the above
Q5) Life insurance activities can be divided into two main categories.Identify these categories and explain the different types of activities which are classified under these categories.Illustrate with examples where possible.
Page 26
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Chapter 25: Financial Reporting in the Public Sector
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Q1) 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
Q2) Rowles (1992)concludes that there is no difference between investments such as in roads and drains made by public sector entities and assets such as blast furnaces made by the private sector.Discuss this view in the light of accounting for infrastructure and heritage assets.
Q3) A Government Trading Enterprise is 'corporatised' when it is restructured into a company and:
A) special legislation controls its activities
B) all the shares are held by the government
C) all the shares are held by private investors
D) some of the shares are held by the government and some are held by private investors
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) Explain why the Australian Stock Exchange supports the adoption in Australia of a set of accounting standards developed by a body such as the International Accounting Standards Board.Discuss whether or not stock exchanges in other countries would also be likely to support the adoption of International Accounting Standards Board standards in their countries.
Q2) The primary benefit of harmonising financial reporting practices around the world is: A) enhancing the attractiveness of exporting goods and services for smaller businesses B) reducing the likely risks and costs of making transactions in different countries
C) eliminating the need for firms operating locally and in other countries to file detailed financial reports with regulatory authorities in other countries
D) that investors in international capital markets can make more reliable comparisons of the reports of different entities
Q3) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
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Chapter 27: Foreign Currency Translation
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Q1) The main objective of translating the financial statements of foreign operations into Australian dollars is to:
A) compare the performance of the foreign subsidiary's managers with their Australian counterparts
B) meet the requirements of tax legislation
C) incorporate the results of the foreign operations into the consolidated financial reports
D) evaluate the performance of the foreign subsidiary's managers
Q2) Explain,using simple numerical examples,how (a)a gain and (b)a loss can arise due to changes in currency exchange rates for a business that is (i)selling goods or services to an overseas buyer and (ii)purchasing goods or services from an overseas supplier.Also explain two ways in which a business engaging in international trade can try to protect itself against possible exchange losses.What are the possible disadvantages,if any,in using the methods you suggest?
Q3) AASB 121 requires an entity to measure its financial performance and financial position in its functional currency.What are the indicators of a functional currency? Is the functional currency the same as the presentation currency? Explain your answers.
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Chapter 28: Accounting for Corporate Social Responsibilities
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Source URL: https://quizplus.com/quiz/71413
Sample Questions
Q1) 'Enlightened self-interest' is usually defined as:
A) engaging in corporate philanthropy, such as by making donations to universities and public charitable institutions
B) incurring costs that promote benefits for society as a whole but which it is hoped will generate benefits for the company concerned that will exceed those costs
C) taking decisions that benefit consumers and the general community, as well as benefiting shareholders of the company concerned
D) taking decisions that benefit consumers and the general community
Q2) Discuss the basic characteristics of the Carbon Pricing Mechanism (CPM).In your answer,explain the cap and trade scheme.
Q3) When an entity's net emissions are less than the permits they hold,at the end of the year they:
A) must forfeit the excess credits
B) can sell the excess credits to other entities
C) can bank the excess credits for future use
D) B and C above
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Chapter 29: Ethics in Accounting
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Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) Ethical egoism is based on a belief that people should act in a way that:
A) maximises the 'good' of the person making the decision
B) maximises the 'common good'
C) maximises good to the top stratum of the elite
D) conforms with the rules established by God
Q2) 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
Q3) Deontological theories of ethics:
A) are a special class of teleological theories
B) can also be described as descriptive theories
C) are based on duties and rights
D) can be all of the above
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