Financial Accounting
Exam Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles and procedures of accounting, focusing on the preparation, interpretation, and analysis of financial statements. The course covers key topics such as the accounting cycle, measurement and recognition of assets, liabilities, equity, revenues, and expenses, as well as the application of generally accepted accounting principles (GAAP). Through practical exercises and real-world examples, students develop the skills needed to understand and communicate financial information essential for effective decision-making in various business environments.
Recommended Textbook
Understanding Australian Accounting Standards 1st Edition by Janice Loftus
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Page 2
Chapter 1: Accounting Regulation and the Conceptual Framework
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Q1) According to the Australian Accounting Standards, the following assets can be recorded initially at historical cost, except for:
A) land.
B) inventory.
C) equipment.
D) motor vehicle.
Answer: B
Q2) 'Kwik Kut Hairdressing' rents a small shop located in Melbourne CBD to operate its hairdressing business. In accordance with the Conceptual Framework, 'Kwik Kut Hairdressing' should recognise monthly payment for the shop rental as:
A) a decrease in assets and an increase in equity.
B) an increase in income and a decrease in liabilities.
C) a decrease in assets and a decrease in income.
D) a decrease in assets and an increase in expense.
Answer: D
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Chapter 2: Application of Accounting Theory
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Q1) Which of the following statements is not a market efficiency assumption?
A) Share price would adjust more rapidly to information contained in financial statements.
B) All information is available free of cost to all market participants.
C) There are no differences in the assessment of the implications of new information for the valuation of shares.
D) There are no transaction costs in trading securities.
Answer: A
Q2) Sally observes that 'Cash' account is an asset account and has a debit balance. She also notices that 'Inventory' account is an asset account and has a debit balance. Therefore, Sally comes into conclusion that all asset accounts have a debit balance. Which approach does Sally use in developing her theory about all asset accounts having a debit balance?
A) Deductive reasoning
B) Inductive reasoning
C) Conceptual reasoning
D) Conclusive reasoning
Answer: B
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Chapter 3: Shareholders Equity: Share Capital and Reserves
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Q1) Accounting for share buy-backs is prescribed by
A) an IFRS accounting standard
B) an IFRIC interpretation
C) an IAS accounting standard
D) generally accepted accounting practices
Answer: D
Q2) Whether a dividend is paid by a company depends on the decisions made by the:
A) creditors of the company;
B) International Accounting Standards Board;
C) auditors of the company;
D) directors of the company.
Answer: D
Q3) Retained earnings are a component of
A) Contributed equity
B) Reserves
C) Other equity
D) Comprehensive income
Answer: B
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Chapter 4: Fair Value Measurement
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Q1) Unobservable inputs for the asset or liability are an example of:
A) a Level 1 input
B) a Level 2 input
C) a Level 3 input
D) a Level 4 input
Q2) Non-performance risk refers to the risk that:
A) a market participant will not fulfil an obligation
B) the holder of the liability will not fulfil an obligation
C) the counterparty will not fill an obligation
D) the holder of a corresponding asset will not fulfil an obligation.
Q3) Which of the following is not a valuation technique prescribed by AASB 13?
A) the fair value approach
B) the income approach
C) the cost approach
D) the market approach
Q4) Trademarks would be measured primarily using which type of inputs?
A) Level 1 inputs
B) Level 2 inputs
C) Level 3 inputs
D) Level 4 inputs
Page 6
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Chapter 5: Revenue
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Q1) The IASB/FASB Exposure Draft titled Revenue from Contracts with Customers is inconsistent with the principles within which of the following?
A) The Conceptual Framework for Financial Reporting
B) AASB 118 Revenue
C) IFRIC 13 Customer Loyalty Programmes
D) All of the options are correct
Q2) Easter Pty Ltd operates a facility making chocolate Easter eggs. Easter has a policy that all unsold chocolate eggs can be returned for a full refund within 1 week of Easter Sunday. On 1 March 2014, Easter sold 500 pallets of packaged eggs at $100 per pallet. Historical data indicates that 20% of the stock will be returned for a refund. Within one month of Easter Sunday (by the end of April 2014) 10% of the eggs were retuned for refund. Using the expected sales approach, how much revenue would be recognised by Easter at the end of April 2014?
A) Nil
B) $40 000
C) $45 000
D) $50 000
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Page 7
Chapter 6: Provisions, Contingent Liabilities and Contingent Assets
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Q1) The uncertainty that exists in relation to provisions is one of A) timing
B) amount
C) timing and amount
D) timing or amount
Q2) Entity A has provided a bank guarantee to a bank in relation to a loan provided to entity B. Entity B is solvent and shows no signs of defaulting on the loan. The treatment of the bank guarantee in the records of entity A is to:
A) recognise a liability
B) recognise a provision
C) recognise a contingent liability
D) do nothing
Q3) An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:
A) liability
B) accrual
C) provision
D) contingent liability
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Chapter 7: Income Taxes
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Q1) Current tax consequences of business operations give rise to:
A) a deferred liability for income tax payable
B) a current liability for income tax payable
C) a non-current liability for taxes payable
D) a contingent liability for taxes payable.
Q2) A taxable temporary difference is expected to lead to the payment of:
A) more tax in the future and gives rise to a deferred tax asset
B) less tax in the future and gives rise to a deferred tax asset
C) more tax in the future and gives rise to a deferred tax liability
D) less tax in the future and gives rise to a deferred tax liability.
Q3) Differences between the carrying amounts of an entity's net assets determined under accounting standards and accrual accounting, and the tax bases of those net assets determined under the Income Tax Assessment Act, are described as:
A) temporary differences
B) permanent differences
C) tax losses
D) the current income tax liability.
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Chapter 8: Financial Instruments
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Questions
Q1) Whitnall Limited lost $150 on a hedging instrument and had a corresponding gain on the hedged item of $100. The effectiveness range for the associated transactions is:
A) 100% - 150%;
B) 20% - 30%;
C) 0% - 15%;
D) 66% - 150%.
Q2) AASB 139 Financial Instruments: Recognition and Measurement, requires that 'Held-to-maturity' investments be initially measured at:
A) fair value;
B) fair value plus transaction costs;
C) discounted future cash outflows;
D) discounted future net cash flows.
Q3) All of the following would be regarded as financial instruments except:
A) bank overdraft;
B) notes payable;
C) cash; D) equipment.
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Chapter 9: Share-Based Payments
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Sample Questions
Q1) What is the fair value of the equity alternative?
A) $240 000
B) $250 000
C) $288 000
D) $300 000
Q2) Which of the following statements in relation to disclosures required under AASB 2 Share-based Payment is NOT correct?
A) For arrangements that were modified during the year, the incremental fair value granted as a result.
B) The weighted average price at the date of exercise for options exercised during the period.
C) A description of the plan, including the general terms and conditions, vesting requirements, maximum term of options granted and method of settlement must be disclosed.
D) for liabilities arising from share-based payment transactions, the total intrinsic value at the end of the period for liabilities where the counter party's right had not yet vested.
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11
Chapter 10: Translation of the Financial Statements of Foreign Entities
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Q1) When translating into the presentation currency the translation difference is recognised:
A) in profit or loss
B) as a separate component of equity
C) in retained earnings
D) as an asset or liability, depending on whether it is a debit or credit balance.
Q2) If the functional currency of Sing Sing is Singapore dollars and the presentation currency is Australian dollars the total assets of S$900 000 would translate into Australian dollars as:
A) $703 125
B) $709 688
C) $1 141 500
D) $1 152 000
Q3) Monetary items are best described as:
A) plant and equipment;
B) units of currency held and assets and liabilities to be received or paid in fixed numbers of currency units;
C) all intangible items including goodwill;
D) all items that are contingent in nature.
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Chapter 11: Employee Benefits
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Q1) Which of the following types of employee benefits are required to be measured at the present value of expected future cash flows?
A) annual leave
B) accumulating non-vesting sick leave
C) maternity leave
D) long service leave
Q2) Which of the following obligations do NOT arise from past services provided by an employee?
A) short-term compensated absences
B) termination benefits
C) other long-term employee benefits
D) post-employment benefits
Q3) Employee benefits can be allocated to assets:
A) only if it relates to the cost of an internally generated intangible
B) where the entity is certain the future economic benefits will flow to it
C) in accordance with the requirements of other accounting standards
D) where they meet the definition of an asset under the Conceptual Framework
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Chapter 12: Inventories
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Q1) Which of the following is not recognised as an expense in accordance with AASB 102?
A) Cost of goods sold
B) Write-downs of inventories to net realisable value
C) Reversal of write downs to net realisable value
D) Inventory items used by an entity as components in self-constructed property, plant or equipment.
Q2) Ming Limited had the following items of inventory at reporting date:
\(\begin{array}{lccc}\text { Item } & \text { Quantity } & \text { Cost/unit \$ } & \text { NRV/unit } \\
& & \$ & \$ \\
\text { Refrigerators } & 10 & 100 & 95 \\
\text { Stoves } & 20 & 80 & 85
\end{array}\)
The adjustment necessary at reporting date is:
A) DR Inventory $ 50;
B) DR Inventory $100;
C) CR Inventory $ 50;
D) CR Inventory $0.
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Page 14
Chapter 13: Property, Plant and Equipment
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Q1) AASB 116 requires disclosure, for each class of property, plant and equipment:
A) the measurement bases used for determining the gross carrying amount
B) the deprecation methods used
C) the useful lives or the depreciation rates used
D) all of the options are correct.
Q2) Under the cost model, after initial recognition of a Property, plant and equipment asset the item must be carried at its:
A) residual value
B) cost less accumulated depreciation and less accumulated impairment losses
C) initial cost
D) net present value.
Q3) When applying a revaluation measurement model to assets, the model:
A) applies to the entire class of non-current assets;
B) may only be applied to current assets;
C) is applied permanently and may not be changed;
D) is applied to individual assets within a class of non-current assets.
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15
Chapter 14: Leases
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Q1) The user of a leased asset is referred to as the:
A) vendor
B) purchaser
C) lessor
D) lessee
Q2) On 30 June 2013, Mala Ltd leased a vehicle to Tango Ltd. Mala Ltd had purchased the vehicle on that day for its fair value of $89 721. The lease agreement cost Mala Ltd $1457 to have drawn up and requires Tango to reimburse Mala for annual insurance costs of $1050. The amount recorded as a lease receivable by Mala Ltd at the inception of the lease is:
A) $88 264
B) $89 721
C) $90 771
D) $91 178
Q3) On inception date, the present value of the minimum lease payments is:
A) $60 359
B) $64 170
C) $64 584
D) $69 000
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Page 16
Chapter 15: Understanding Australian Accounting Standards
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Sample Questions
Q1) Items such as market knowledge, effective advertising programs, fundraising capabilities and trained staff are NOT regarded as assets because they:
A) are monetary items
B) cannot be measured
C) are not controlled by the entity
D) are too difficult to manage
Q2) Parsons Limited was involved in a highly successful plastics manufacturing business. It commenced a project to design a more efficient extrusion system for its plastic pipes. The following outlays occurred: January Research salaries $50 000 February Research materials $30 000 March re-development of the extrusion plant $400 000 April Final adjustments to the extrusion plant $25 000. The amount to be expensed by this company at the end of the financial year, 30 June, is:
A) $30 000
B) $50 000
C) $80 000
D) $480 000.
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Chapter 16: Impairment of Assets
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Q1) Jam Pty Ltd has two cash generating units. CGU A had a carrying amount of $700 and value in use of $750. CGU B has a carrying amount of $900 and a value in use of $800. The carrying amount of the head office assets is $400. CGU A & B utilise the head office services equally. The impairment loss for CGU A is:
A) $0
B) $50
C) $150
D) $350
Q2) Hayfield Limited recognised an impairment loss of $200 against a cash-generating unit containing the following assets: Buildings $500; Roads $300; Equipment $600. The net carrying amount of the Roads after allocation of the impairment loss is:
A) $100
B) $235
C) $257.
D) $300
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Chapter 17: Accounting for Mineral Resources
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Q1) Which costs are within the scope of AASB 6?
A) Pre-exploration and evaluation phase expenditure
B) Exploration and evaluation phase expenditure
C) Development phase expenditure
D) All of the above
Q2) Subsequent to initial recognition E&E assets are required to be measured:
A) under the cost model
B) under the revaluation model
C) either under the cost model or revaluation model
D) at the lower of the cost and fair value
Q3) AASB 6 requires disclosure of which of the following?
A) accounting policies relating to pre-exploration costs
B) financing cash flows relating to E&E activities
C) impairment write-downs made on E&E assets
D) accounting policies relating to E&E assets
Q4) In the context of AASB 6, E&E stands for:
A) evaluation and extraction
B) exploration and evaluation
C) extraction and exploration
D) exploration and expenditure
Page 19
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Chapter 18: Agriculture
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Q1) Which standard was issued in 2011 that amended AASB 141?
A) AASB 7
B) AASB 101
C) AASB 118
D) AASB 13
Q2) According to AASB 13 Fair Value Measurement, the market used to determine fair value should be:
A) the principal market, or, in the absence of a principal market, the relevant market
B) the most advantageous market
C) the relevant market
D) either the principal market, or, in the absence of a principal market, the most advantageous market
Q3) Which of the following would be disclosed in the Statement of Financial Position as a biological asset under AASB 141?
A) Vines
B) Picked fruit
C) Cotton
D) Timber
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Chapter 19: Financial Statement Presentation
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Q1) The following are normally presented in a statement of financial position as current items:
A) deferred tax liabilities
B) accounts payable
C) deferred tax assets
D) goodwill.
Q2) AASB 101 requires the following items to be disclosed separately in the statement of profit or loss and other comprehensive income:
I Cost of sales.
II Revenue.
III Finance costs.
IV Share of the profit or loss from associates.
V Tax expense relating to extraordinary events.
VI Tax expense relating to ordinary activities.
VII Profit or loss.
A) I, II, VI and VII only
B) I, II, III and V only
C) II, III, IV, VI and VII only
D) I, III, V and VII only.
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Chapter 20: Statement of Cash Flows
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Q1) Which of the following items would be presented in a Statement of Cash Flows?
A) Payment of dividends through a share investment scheme
B) Acquisition of an investment in a subsidiary for consideration consisting of an exchange of non-current assets and liabilities
C) Proceeds from the issue of debentures
D) Refinancing of long-term debt
Q2) The following item is classified as a 'financing activity' in the Statement of Cash Flows:
A) interest paid on debentures
B) cash received from accounts receivable
C) cash payment on redemption of the company's debentures
D) cash payment to purchase debentures of another entity.
Q3) An item or transaction will qualify for classification as a cash equivalent:
A) if it has a remaining term of more than three months but no more than six months
B) its term to maturity is no greater than twelve months
C) it has a fixed maturity date of greater than twelve months
D) only if it has a maturity of less than three months.
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Chapter 21: Earnings Per Share
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Q1) XYZ Ltd has 10 000 ordinary shares on issue at 1 July 2015 which is the beginning of its reporting period. On 1 May 2016, it issued a further 2000 ordinary shares for cash. The weighted average number of shares for use in the earnings per share calculation is:
A) 10 000 shares
B) 10 333 shares
C) 11 000 shares
D) 12 000 shares
Q2) The basic earnings per share and diluted earnings per share ratios must be presented in an entity's:
A) statement of financial position even if the amounts are negative
B) statement of profit or loss and other comprehensive income even if the amounts are negative
C) statement of profit or loss and other comprehensive income only if the amounts are positive
D) statement of changes in equity even if the amounts are negative
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Chapter 22: Operating Segments
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Q1) If an operating segment does not meet all of the thresholds of significance, it: A) may not be designated as a reportable segment; B) may still be designated as a reportable segment; C) must be combined with the largest of the other segments and reported in aggregate; D) is insignificant and cannot be reported separately.
Q2) AASB 8 Operating Segments is primarily a:
A) disclosure standard; B) measurement standard; C) definition standard; D) conceptual standard.
Q3) For financial reporting periods commencing prior to 1 January 2009, the accounting standard relating to segment reporting was:
A) AASB 8 Operating Segments;
B) AASB 114 Segment Reporting;
C) AASB 114 Operating Segments;
D) AASB 8 Segment Reporting.
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Chapter 23: Operating Segments
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Q1) In the case where financial statements of parent entity or the ultimate controlling entity are not made publicly available, the reporting entity must disclose:
A) the name of the entity's largest shareholder;
B) the name of the next most senior parent entity whose financial statements are publicly available;
C) the reason of why the parent entity does not make its financial statements publicly available;
D) the level of share ownership of the next most senior parent entity.
Q2) Galaxy Limited is a listed company operating in retail industry with three business units: Milky Way, Andromeda, and Whirlpool. Which of the followings is likely to be the key management personnel of Galaxy Limited?
A) The general manager of Milky Way;
B) The managing director's personal assistant;
C) The company's auditor;
D) The company's IT manager.
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25
Chapter 24: Business Combinations
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Q1) If shares are issued as part of the consideration paid, transactions costs such as brokerage fees may be incurred. According to AASB 3 Business Combinations the appropriate accounting treatment for such costs in the records of the acquirer is a debit to:
A) share capital
B) investments
C) cash
D) acquisition expenses.
Q2) A business combination is defined as:
A) A transaction in which an acquirer obtains control of an acquiree
B) A transaction in which one entity obtains control of one or more other entities
C) A transaction or other event in which an acquirer obtains control of one or more businesses
D) A transaction or other event in which an entity obtains control of one or more businesses
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26
Chapter 25: Consolidation: Principles and Accounting Requirements
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Q1) In which of the following situations is an investor more likely to have power over an investee when the investor holds less than 50% of the investee's shares?
A) The remaining shares are held by a small number of shareholders.
B) The remaining shares are held by shareholders who majority live overseas.
C) Majority of remaining shareholders attend and vote at the annual general meeting.
D) Majority of remaining shareholders have concerns with environmental issues related to the investee's operations.
Q2) Which of the followings is not the reason of preparing consolidated statements?
A) To show parent entity's accountability in managing the group's assets
B) To provide investors with relevant information
C) To provide investors with useful information for comparisons between entities
D) To achieve efficiency by producing only one set of financial statements for the whole group.
Q3) In a consolidated group of entities, control over the subsidiaries in the group:
A) may not be shared control
B) can be shared with other parties
C) can be less than 100% control
D) can be less than 50% control.
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Chapter 26: Consolidation: Intragroup Transactions
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Q1) When an entity sells a non-current asset at a profit to another entity within the same group the following adjustment is necessary on consolidation:
A) DR \(\quad\)Asset
CR\(\quad\)Cash
B) DR\(\quad\)Cash
CR\(\quad\)Asset
C) \(\begin{array} { l l }
\text { DR } & \text { Gain on sale } \\ CR& \text { Asset } \end{array}\)
D) DR\(\quad\) Asset CR \(\quad\)Gain on sale.
Q2) With the transfer of services within the group:
I made a change to the original question, as the original question is very similar to Q16.
A) there will be an increase in deferred tax assets.
B) the consolidation adjustments do not affect profit of the group.
C) the group's profit equals service revenue less service expense.
D) there will be an increase in income tax expense.
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Chapter 27: Consolidation: Non Controlling Interest
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Q1) For a transaction to require an adjustment to the calculation of a non-controlling interest share of equity it must have which of the following characteristics:
I. The transaction must result in the subsidiary recording a profit or a loss.
II. After the transaction the other party (not the non-controlling party) must have on hand an asset on which unrealised profit is accrued.
III. The initial consolidation adjustment must affect both the statement of financial position and statement of comprehensive income.
A) I and II only
B) I, II and III
C) II and III only
D) None of the above.
Q2) When presenting a consolidated statement of financial position the non-controlling interest is:
A) presented separately within the non-current liability section;
B) presented as a separate component of total assets and total liabilities;
C) presented separately within the equity section;
D) shown as a separate portion of net assets.
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Chapter 29: Joint Arrangements
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Q1) Which of the following is correct?
A) All joint arrangements which are not structured through a separate vehicle are classified as joint ventures;
B) For a joint venture, the rights pertain to the rights and obligations associated with individual assets and liabilities, whereas with a joint operation, the rights and obligations pertain to the net assets.
C) In considering the legal form of the separate vehicle if the legal form establishes rights to individual assets and obligations, the arrangement is a joint operation. If the legal form establishes rights to the net assets of the arrangement, then the arrangement is a joint venture.
D) Where the joint operators have designed the joint arrangement so that its activities primarily aim to provide the parties with an output it will be classified as a joint venture.
Q2) As part of its initial contribution entry B Ltd will record a:
A) Debit against the Services Receivable in JO account of $32,000;
B) Debit against the Plant in JO account of $36,000;
C) Credit against the Obligation to JO of $39,000;
D) Credit against the Gain on Provision of Services of $6,000.
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Page 30
Chapter 30: Associates and Joint Ventures
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Sample Questions
Q1) Clovelly Ltd, owns 25% of Bronte Ltd. Bronte's profit after tax for the year ended 30 June 20X3 is $30 000. The tax rate is 30%. During the year ended 30 June 20X4, Bronte sold $5000 worth of inventory to Clovelly. These items had previously cost Bronte $3000. All the items remain unsold by the Clovelly at 30 June 20X3. Clovelly's share of Bronte's profit for the year ended 30 June 20X3 is:
A) $5500
B) $6250
C) $7150
D) $7000
Q2) Investor Limited acquired a 30% interest in Investee Limited for $27 000. Investor holds other equity investments but does not prepare consolidated financial statements. Investee Limited revalued its buildings class of assets by $10 000 during the current financial period. The balance of the investment in associate account at the end of the current financial period is:
A) $11 100;
B) $18 100;
C) $27 000;
D) $30 000.
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