Company Accounting Practice Exam
Course Introduction
Company Accounting is a foundational course that explores the principles and practices involved in the preparation and analysis of financial statements for companies. The course covers key topics such as the accounting for share capital, debentures, and reserves, as well as the treatment of dividends, bonus issues, and business combinations. Students will learn about regulatory frameworks, compliance requirements, and the application of accounting standards to corporate transactions. Through practical exercises and real-world examples, the course aims to equip students with the skills needed to accurately record, report, and interpret company financial information, supporting informed business decision-making.
Recommended Textbook
Accounting for Corporate Combinations and Associations 8th Australian Edition by Neal Arthur
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Chapter 1: Text Objectives and Introduction to Consolidation
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31 Verified Questions
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Sample Questions
Q1) What are the major criticisms of the control criterion applied to the definition of the group?
Answer: Criticisms of control criterion:
- Lack of clear guidelines as to what constitutes control where there is less than 50% ownership
- Current proposals attempt to clarify this ambiguity.
Q2) If a parent loses control of a subsidiary during a financial year,that subsidiary's results are ignored for consolidation purposes.
A)True
B)False
Answer: False
Q3) In the separate financial statements of a parent entity,investments not classified as held for sale are accounted for:
A) at cost.
B) at fair value.
C) at either cost or fair value.
D) not recorded.
Answer: C
Page 3
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Chapter 2: Principles of Consolidation
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Sample Questions
Q1) On the acquisition date,the fair value of Slate's identifiable net assets was $750 000,which was represented by issued capital of $550 000 and retained earnings of $200 000.If Pristine Company paid $825 000 to acquire all of the issued shares of Slate,what amount of goodwill will be recognised by the group?
A) $200 000
B) $0
C) $75 000
D) $275 000
Answer: C
Q2) It is important to distinguish between pre-acquisition and post-acquisition equity of a subsidiary to allow:
A) post-acquisition equity to be eliminated on consolidation.
B) goodwill or gain on bargain purchase to be calculated.
C) avoidance of double counting of pre-acquisition equity.
D) none of the above.
Answer: C
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Chapter 3: Fair Value Adjustments and Tax Effects
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Sample Questions
Q1) Discuss the reasons for ignoring tax effects in respect of goodwill recognised on consolidation in a business combination.
Answer: Tax effects of goodwill:
- Goodwill amortisation or impairment loss is not recognised for tax purposes.
- The reason for this exemption is that goodwill is calculated as a residual,and recognition of a deferred tax liability would give rise to the necessity of a further increase in goodwill,as the deferred tax liability recognition would reduce net assets.This process would then continue through a number of iterations.
Q2) Management of acquiring companies have incentive to provide for as many future costs as possible in a business combination.
A)True
B)False
Answer: True
Q3) The recorded equity of a subsidiary at acquisition will always equal the fair value of the subsidiary's net assets.
A)True
B)False
Answer: False
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5
Chapter 4: Intra-Group Transactions
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Sample Questions
Q1) Explain why cash will never be adjusted in consolidation journal entries.
Q2) Which of the following accounts cannot be altered by a consolidation adjusting entry?
A) Income tax expense
B) Income tax payable
C) Deferred tax asset
D) Deferred tax asset.
Q3) Using the same facts as Question 14 but assuming that S will depreciate the asset over its remaining estimated useful life of eight years,what is the depreciation expense adjustment required on consolidation one year after the intragroup sale?
A) Cr. $400
B) Dr. $400
C) Cr. $2100
D) Cr. $2500
Q4) Unrealised gains on the intragroup sale of depreciable assets are realised via depreciation charges over the remaining useful life of the asset.
A)True
B)False
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Chapter 5: Non-Controlling Interest
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Sample Questions
Q1) Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?
Q2) The consolidation technique of NCI allocation is based on the proposition that non-controlling shareholders have an ownership interest in group equity.
A)True
B)False
Q3) The parent interest (PI)in equity will be calculated as follows:
A) consolidated equity less non-controlling interest.
B) parent equity plus PI share of subsidiary equity.
C) parent equity plus non-controlling interest.
D) none of the above.
Q4) Under the entity concept of consolidation,the NCI is recognised as a liability.
A)True
B)False
Q5) The fair value method of measuring NCI includes an amount representing the non-controlling shareholder's interest in goodwill.
A)True B)False
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Chapter 6: Partly-Owned Subsidiaries: Indirect
Non-Controlling Interest
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Q1) Why does the multiple consolidation method adopt a revaluation approach to the net assets of sub-subsidiaries?
Q2) Circular shareholdings arise where:
A) a subsidiary holds an equity interest in its parent.
B) a sub-subsidiary holds an interest in another subsidiary of its parent.
C) a subsidiary holds an interest in a sub-subsidiary.
D) none of the above.
Q3) A owns 80% of B and B owns 60% of C.If C pays a dividend and B distributes the amount received to its own shareholders,the allocation of the dividend will be:
A) parent 48%, NCI 52%.
B) parent 52%, NCI 48%.
C) parent 100%.
D) NCI 100%.
Q4) Discuss the disadvantages of the sequential consolidation method.
Q5) Circular shareholdings are allowed under the Corporations Act.
A)True
B)False
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Q6) Why is the indirect NCI not entitled to any share of pre-acquisition equity under the multiple consolidation method?
Chapter 7: Consolidated Cash Flow Statements
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Sample Questions
Q1) A statement of cash flows can be prepared using:
A) the reconstruction of ledgers approach.
B) the formula approach.
C) the spreadsheet approach.
D) all of the above.
Q2) A Ltd acquires 100% of shares of B Ltd for $195 000,financed by an issue of 100 000 x $1.50 shares and $45 000 cash.B Ltd has cash balances of $35 000 at the date of acquisition.Which amount will A Ltd record for cash flow from investing in its consolidated statement of cash flows?
A) ($195 000)
B) ($450 000)
C) ($10 000)
D) ($35 000)
Q3) Accounting Standard AASB 107 Statement of Cash Flows mandates the provision of cash flow information from operating,financing and investing activities.
A)True
B)False
Q4) Why is cash flow from operating activities seen as a performance measure?
Q5) Discuss the basis of classifying cash flows arising from interest paid.
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Chapter 8: Accounting for Joint Arrangements
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Q1) The essential element that would distinguish a business undertaking as a partnership and NOT a joint venture operation would be:
A) the business undertaking makes a profit in the year.
B) there is no joint control agreement so that the undertaking is neither a joint venture entity nor a joint venture operation.
C) the business activity is an undertaking formed by the investors with the intention of making a profit.
D) none of the above.
Q2) The line-by-line method of accounting hides the existence of interests in jointly controlled operations and jointly controlled assets.
A)True
B)False
Q3) A jointly controlled entity can be:
A) a company.
B) a partnership.
C) a trust.
D) all of the above.
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10
Chapter 9: Accounting for Associates and Joint Ventures: the Equity Method
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Sample Questions
Q1) It is possible that different entities can respectively exert control and significant influence over an investee entity.
A)True
B)False
Q2) Discuss whether equity accounting profits are realise' from the viewpoint of the investor.
Q3) The equity accounting method must be applied by all applicable reporting entities.
A)True
B)False
Q4) Explain the following statement:
'When reconciling the investor's interest in an associate's net assets to the equity accounted carrying amount of the investment in the investor's financial statements,the unimpaired balance of goodwill will be a reconciling item.'
Q5) An investment in an associate company will initially be recorded at fair value. A)True B)False
Q6) What is the rationale for the extensive note disclosure requirements under AASB 128?
Page 11
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Chapter 10: Translation and Consolidation of Foreign Currency Financial Statements
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Sample Questions
Q1) Under the temporal method,all revenue and expense items are translated at:
A) historical rate.
B) average rate.
C) either historical or average rate.
D) none of the above.
Q2) A foreign exchange gain arising from translating financial statements should always be recorded as revenue.
A)True
B)False
Q3) A 'natural hedge' occurs when an Australian company's foreign operation is financed using:
A) debt denominated in AUD.
B) debt denominated in the same currency as the investment.
C) debt denominated in any foreign currency.
D) none of the above.
Q4) The translation gain or loss on a foreign operation using the current rate method represents the effect of exchange rate movements on net assets.
A)True
B)False
Page 12
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Chapter 11: Segment Reporting by Diversified Entities
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Sample Questions
Q1) The aim of segment reporting is to provide entity stakeholders with the information required to:
A) have a better understanding of the entity's past performance.
B) make a more informed assessment of the entity's risks and returns.
C) make more informed judgments about the performance and position of the entity as a whole.
D) all of the above.
Q2) Where the total revenue derived by the reportable segments of a group from the provision of goods or services to external customers is less than 75% of the total group sales revenue:
A) other components of the business are identified as reportable segments until the 75% threshold is reached.
B) other components are combined as a reportable segment until the 75% threshold is reached.
C) other components are combined in segments in which the combined segment revenue derived from external sales is 10% or more of the total external sales until the 75% threshold is reached.
D) none of the above.
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