Financial Accounting
Exam Solutions
Course Introduction
Financial Accounting provides an introduction to the fundamental principles and concepts used in preparing and analyzing financial statements. The course covers the accounting cycle, including recording transactions, adjusting entries, and preparing financial reports such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding the role of accounting information in decision-making for internal and external stakeholders, as well as gaining familiarity with generally accepted accounting principles (GAAP) and ethical considerations. Through practical examples and case studies, students develop the skills to interpret financial data and assess the financial health of organizations.
Recommended Textbook
Company Accounting Australia New Zealand 5th Edition by Peter Jubb
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26 Chapters
653 Verified Questions
653 Flashcards
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Page 2
Chapter 1: Companies and Corporate Regulation
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Sample Questions
Q1) Complete the following sentence:
The ______________ is primarily responsible for the broad direction of policy (for example, the adoption of IFRS) concerning Australian accounting standards.
A)ASIC
B)AARF
C)AASB
D)FRC
Answer: D
Q2) Complete the following sentence:
The ______________ is responsible for prosecuting companies for breaches of AASB standards.
A)ASIC
B)AARF
C)AASB
D)ASX
Answer: A
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Page 3
Chapter 2: Objectives of Company Reporting, Conceptual
Elements and Terminology
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Sample Questions
Q1) The Net Realisable Value of an asset is the amount it could be sold for in its present state only.
A)True
B)False
Answer: False
Q2) For entities that have to prepare a financial report under the Corporations Act, that report must:
Show a true and fair view?
Comply with all AASB standards?
A)\(\quad\) No
\(\quad\)\(\quad\)Yes
B)\(\quad\) No
\(\quad\)\(\quad\)Maybe
C)\(\quad\) Yes
\(\quad\)\(\quad\)Maybe
D)\(\quad\) Yes
\(\quad\)\(\quad\)No
Answer: C
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Chapter 3: Forming a Company and Issuing Shares
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Sample Questions
Q1) A preference share
A)may give the holder a divided based on a fixed percentage, provided there are sufficient profits
B)always gives the holder preference to return of capital in the event of a liquidation
C)always gives the holder the same voting rights as an ordinary share
D)all of the above
Answer: A
Q2) How much money would the company hold from this subscription on 30 June 20X1, assuming that applications can be credited to calls in advance and that all call money was received?
A)$27 000
B)$36 000
C)$24 000
D)$30 000
Answer: D
Q3) Public companies must have at least five directors.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Profits, Reserve and Distributions to Owners
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Sample Questions
Q1) Which of the following statements is true?
A)For public companies, dividend entitlements are the same for all shares within a class, unless the company's constitution or a special resolution provides otherwise.
B)For proprietary companies, there is a replaceable rule that, subject to the agreement under which the shares were issued, the directors may pay dividends as they see fit.
C)For no liability companies, all ordinary shares have the same dividend entitlement, but there is no right to a dividend if a call has been made that is still outstanding.
D)all of the above
Q2) The Corporations Act does not permit the payment of interest on capital.
A)True
B)False
Q3) Dividends must be paid out of current year's profits.If a loss is made in the current year a dividend can not be paid.
A)True
B)False
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Chapter 5: Reorganisation of Share Capital
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Sample Questions
Q1) The directors of Ponting Ltd have decided to reduce capital by a pro rata cancellation of shares.How many shares will be on issue after the capital reduction if capital of $21 000 000 is returned?
A)3 750 000
B)2 500 000
C)3 500 000
D)2 750 000
Q2) On 31 December the directors of Waugh Ltd decided that its ordinary shares should be consolidated so that the share capital would comprise 2 500 000 ordinary shares.After the consolidation, the amount outstanding (uncalled) on each share will be:
A)$5.00
B)$12.00
C)$20.00
D)$15
Q3) Transaction costs relating to share buybacks are excluded from period profit or loss and recognised as other comprehensive profit.
A)True
B)False
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7
Chapter 6: Debt Securities
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Sample Questions
Q1) Which of the following statements is incorrect? Under AASB 139:
A)debentures must initially be recorded at fair value
B)transactions costs must never be incorporated into the carrying amount of debentures
C)in the case of par issues the fair value is usually the same as the par amount
D)premium or discount on issue should not be recognised as a revenue or expense in the period in which the debenture is issued
Q2) Which of the following statements is incorrect?
A)A floating charge relates only to a class or classes of assets
B)A fixed charge relates to one or more specific assets such as a block of land
C)A floating charge crystallises in the event of a specified breach in the loan agreement
D)The lender who holds a floating charge has superior claim over assets compared with any other lender.
Q3) 'Par' amounts of debt are officially abolished along with par amounts for shares.
A)True B)False
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Chapter 7: Foreign Currency Transactions and an Introduction to Hedging
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Sample Questions
Q1) For Alpha Ltd, it presentation currency is:
A)A$
B)¥
C)UK£
D)US$
Q2) In Australia, the presentation currency adopted must be the Australian currency.
A)True
B)False
Q3) What FC exchange difference amounts will be included in Jackson's profit or loss statement?
\(\quad\)\(\quad\)\(\quad\)20X0 \(\quad\)\(\quad\)\(\quad\)20X1
\(\quad\)\(\quad\)\(\quad\)\(\quad\)$
\(\quad\)\(\quad\)\(\quad\)\(\quad\)$
A)10,000 expense\(\quad\) 10,000 revenue
B)10,000 expense \(\quad\)20,000 expense
C)10,000 revenue \(\quad\)20,000 revenue
D)5,000 revenue \(\quad\) 20,000 revenue
Q4) A direct exchange rate quotation is one expressed in terms of the foreign currency equivalent of one unit of domestic currency. A)True
Page 9
B)False
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Chapter 8: Advanced Asset and Liability Issues
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Sample Questions
Q1) Under AASB 116, the minimum factors that must be considered when deciding if an asset's recoverable amount must be reassessed are not the same for both impairment and reversal of a previously recognised impairment.
A)True
B)False
Q2) The recoverable amount of an asset is:
A)its fair value
B)its value in use
C)the greater of its value in use and its net fair value (fair value less cost to sell)
D)its net fair value (fair value less cost to sell)
Q3) The carrying amount of an asset is:
A)its cost less accumulated depreciation
B)the greater of its cost and its recoverable amount
C)its cost less its value in use
D)its cost less accumulated depreciation less accumulated impairment
Q4) The definition of contingent assets is narrower than the definition of contingent liabilities.
A)True
B)False
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Chapter 9: Income Tax
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Sample Questions
Q1) A taxable temporary difference always results in the recognition of a deferred tax liability.
A)True
B)False
Q2) Under AASB 112 the following is true:
A)taxable temporary difference produce deferred tax assets and deductible temporary differences produce deferred tax liabilities
B)taxable temporary difference produce deferred tax liabilities and deductible temporary differences produce deferred tax assets
C)carry forward tax losses produce deferred tax liabilities
D)income tax is treated as an expropriation of profits not as an expense.
Q3) Under the balance sheet approach, the income tax expense has two components: (i) the current tax expense (or current tax revenue) and (ii) the net deferred tax expense (or net deferred tax revenue).
A)True
B)False
Q4) Temporary taxable difference result in the recognition of deferred tax assets.
A)True
B)False
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Chapter 10: Reports and Disclosures I: Overview
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Sample Questions
Q1) It is important that disclosure be made of the accounting policies adopted in preparing a financial report:
A)because they have to be disclosed under AASB 108
B)because they can have a significant effect on the items recognised, how they are measured and the disclosure made about them
C)only to the extent that they are material in understanding the financial report
D)even if they are not material, they are necessary to explain the events and transactions of the entity
Q2) Which of the following is not a correct statement of the nature of the comparative amounts included in a financial report:
A)they must be adjusted for errors discovered in subsequent reporting periods
B)they are adjusted for subsequent changes in accounting policies
C)they must always be the same as in the prior period financial report
D)they are not adjusted to reflect subsequent changes in accounting estimates
Q3) A company must always send to every shareholder a copy of its annual financial report.
A)True
B)False
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Chapter 11: Reports and Disclosures Ii: the Financial Statements
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Q1) Under AASB 101, separate disclosure is not required in the changes in equity statement of the amount of total comprehensive profit attributable to both the owners of the parent and to non-controlling shareholders.
A)True
B)False
Q2) The alternative liquidity based classification of assets and liabilities can only be adopted by financial institutions such as banks, building societies and insurance companies.
A)True
B)False
Q3) Under AASB 101 which of the following is not required to be disclosed in relation to owners' equity:
A)the proportion of each class of shares listed for trading on a stock exchange
B)the number of fully paid shares and the number of partly paid shares
C)for each class of shares, the rights to participate in dividends
D)a reconciliation of the number of shares issued at the beginning and end of the reporting period
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Page 13
Chapter 12: Receivership and Voluntary Administration
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Q1) The appointment of a receiver invariably results in the dissolution of the company.
A)True
B)False
Q2) The director's powers cease and are not returned to the directors under a:
A)Voluntary administration
B)Receivership
C)Liquidation
D)External administration
Q3) A receiver must be a registered company liquidator.
A)True
B)False
Q4) There is no disclosure of the fact that a company is under external administration.
A)True
B)False
Q5) A receiver is always appointed under a deed of arrangement.
A)True
B)False
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Chapter 13: Liquidations
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Sample Questions
Q1) The company went into liquidation on 1 August 20X1 with net debt of $7 000 000.What is the maximum amount, if any, the liquidator can require the shareholders of Dooby Ltd to pay per share?
A)Nil
B)$0.70
C)$0.625
D)$0.60
Q2) The court received an application for the winding up of Amer Ltd.If the application is granted this winding-up will be a:
A)compulsory
B)creditors' voluntary
C)members' compulsory
D)members' voluntary
Q3) When determining the amount to be returned to shareholders, we must consider the amount for which the shares were initially issued.
A)True
B)False
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15
Chapter 14: External Administration Reports and Accounts
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Q1) When a company is liquidated, in closing the company's ledgers there is always a debit to the paid-up capital accounts.
A)True B)False
Q2) A report as to affairs is required for the Court appointment of a liquidator but not for the appointment of a controller or other administrator.
A)True B)False
Q3) With respect to the report as to affairs, which statement is correct? The total carrying amount of assets is:
A)likely to be higher than the total of their estimated realisable values
B)likely to be lower than the total of their estimated realisable values
C)unable to be determined and must be estimated with reference to a comparable company
D)likely to be equal to the total of their estimated realisable values
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Chapter 15: Investments in New Assets; Introduction to
Business Combinations and Associates
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Sample Questions
Q1) Billy Ltd owns 19% of Guyatts Ltd and has significant influence over the operations of Guyatts Ltd.For the year ended 31 December 20X1, Guyatts Ltd reported a profit of $900 000 and paid a total cash dividend of $100 000.What is the difference between the total revenue reported by Billy Ltd under the equity method in AASB 128 versus that revenue which would be reported under the cost method? The AASB 128 net revenue would be higher by:
A)$33 000
B)$133 000
C)$152 000
D)$190 000
Q2) Return of post-acquisition equity for an investment in an associate may be regarded as a dividend revenue or a return of the initial investment depending on the operation of AASB 127.38A.
A)True
B)False
Q3) The equity method of accounting is always used to account for share investments which convey significant influence.
A)True
B)False
Page 17
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Chapter 16: The Corporate Group
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Sample Questions
Q1) The concept that underpins consolidations is:
A)The entity concept, as explained in the Corporations Act
B)The parent entity concept, as explicitly mentioned in AASB 127
C)The entity concept, as implied by the functioning of AASB 127 and explicitly mentioned in predecessor standards.
D)The proprietary concept, as explicitly described in AASB 3 and AASB 127.
Q2) A large proprietary company must always produce a financial report.
A)True
B)False
Q3) Which of the following statements is not correct:
A)A liquidator of a company does not control that company under the AASB 3 definition
B)A foreign wholly-owned subsidiary whose control is impaired due to an oppressive government would be excluded from the consolidation
C)Control can exist for a period of less than twelve months
D)A jointly controlled entity must be included in the consolidation
Q4) For an asset, if the group CA > CA there is a deferred tax asset (DTA).
A)True
B)False
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Page 18
Chapter 17: Acquisition Method Introduction and Substitution
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Q1) Led Ltd acquired 100% of Zeppelin Ltd on 30 June 20X0 by paying $6 million cash and incurring $1 million legal fees.At that date the net assets of Zeppelin Ltd was as follows: \[\begin{array} { l r r } & \text { Recorded amount } & \text { Fair value } \\ \text { Total assets } & \$ 9 \text { million } & \$ 10 \text { million } \\ \text { Total liabilities } & \$ 1 \text { million } & \$ 1 \text { million } \\ \text { Net assets } & \$ 8 \text { million } & \$ 9 \text { million } \end{array}\]
Total assets comprise buildings of $6 million, equipment of $3 million and accounts receivable of $1 million.All these figures are fair values.What is the recorded amount of buildings in Led group's consolidated financial statements for the year ended 30 June 20X0?
A)$6 million
B)$3 million
C)$2 million
D)$4.66 million
Q2) Goodwill does not result in recognition of DTA or DTL.
A)True
B)False
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Chapter 18: Acquisition Method Application After Control
Date
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Q1) Assets of Argus Ltd include a plot of land purchased for $40 000.On 1 January 20X0 Argus became a subsidiary of Cyclops Ltd.The land was sold on 30 March 20X9 for $350 000.The land's fair value at the following dates was:
1 January 20X0\(\quad\)\(\quad\)\(\quad\) $100 000
31 December 20X3 \(\quad\)\(\quad\)$270 000
31 December 20X6 \(\quad\)\(\quad\)$240 000
31 December 20X8 \(\quad\)\(\quad\)$360 000
The group applies the cost model.The carrying amount of the land immediately before control date is $40 000.
What is the profit on sale of land attributable to the group in 20X9?
A)$60 000
B)$310 000
C)$250 000
D)None of the above
Q2) The elimination of intra-group debts does not have any tax effects.
A)True
B)False
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Page 20
Chapter 19: Intra-Group Transactions
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Sample Questions
Q1) You hear the following statement made at a conference: 'If, on 1 September 20X3 a company lent money to its wholly owned subsidiary, with interest payable annually in arrears for five years; then the only journal entry required when preparing the consolidated profit or loss statement for the year ending 30 June 20X5 would be to debit the interest income account and credit the interest expense account.'
This statement is:
A)correct, because no other entries are required
B)incorrect, because the interest income has to be credited and interest expense debited.
C)incorrect, because the interest revenue and the interest expense do not have to be eliminated
D)incorrect, because the asset and the liability have to be eliminated also
Q2) Subsidiary buys inventory from parent at a transfer price of $150 000.The profit margin included in this was $50 000. The group will need to reduce its cost of sales by $100 000 in total.
A)True
B)False
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Chapter 20: Direct Non-Controlling Interest
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Q1) On 1 January 20X0, Zed Ltd acquired 90 % of the share capital of Ned Ltd for $900 000 cash.At that date, the equity section of Ned Ltd's balance sheet was as follows: \(\begin{array}{llcc} &\$\\
\text {Share capital } &700000 \\
\text { Retained profits} &50000\\
\text { Asset revaluation reserve } &100000\\
\end{array}\)
Assume all assets and liabilities were recorded at their fair values, except for a piece of equipment recorded at $50 000 but Zed Ltd considers it to have a fair value of $100 000. This equipment is not revalued by Ned Ltd. What was the difference on acquisition under the partial method?
A)Nil
B)$90 000 bargain purchase
C)$90 000 goodwill
D)$50 000 goodwill
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Chapter 21: Changes to Parent Investment in Subsidiaries
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Q1) If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X0 acquisition?
A)$405 000
B)$385 000
C)$200 000
D)$235 000
Q2) A post-control decrease in the percentage of shares held by the parent entity does not affect the consolidated profit or loss statement.
A)True
B)False
Q3) If the partial method of measuring goodwill is adopted, what was the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date?
A)$550 000
B)$1 000 000
C)$750 000
D)$200 000
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Chapter 22: Indirect Interest
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Q1) What is the amount of the ultimate parent shareholders' interest in Klim Ltd's profit for this financial year?
A)$280 000
B)$294 000
C)$392 000
D)$420 000
Q2) What is the amount of the ultimate parent shareholders' indirect interest in Perkins Ltd's net result for this financial year?
A)$600 000 loss
B)$490 000 loss
C)$420 000 loss
D)Nil
Q3) What is the NCI's indirect interest in Roeburn Ltd?
A)40%
B)24%
C)60%
D)36%
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24
Chapter 23: Translation of Foreign Currency Statements
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Q1) For the reporting period ending 30 June 20X6 the consolidated financial statements of Little Ozzie Battlefield Equipment Ltd will show
A)goodwill of A$1 875 000 and a translation difference expense of A$312 500 which is recognised as other comprehensive profit
B)goodwill of A$2 000 000 and a translation difference expense of A$312 500 which is recognised as other comprehensive profit
C)goodwill of A$1 875 000 and a translation difference expense of A$125 000 which is recognised as other comprehensive profit
D)goodwill of A$1 875 000 and a translation difference revenue of A$312 500 which is recognised as other comprehensive profit
Q2) Which of the following most nearly reflects the requirements of AASB 121?
A)The presentation currency must be the A$.
B)When the presentation currency is other than the A$, the reason and justification must be disclosed.
C)When the presentation currency is other than the A$, the reason must be disclosed.
D)No limitation is placed on the selection of the presentation currency.
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Chapter 24: Consolidated Cash Flow Statements
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Q1) The effect of a pro-rata share issue for cash by a subsidiary on the consolidated cash flow statement:
A)is always totally eliminated
B)is always included
C)is only included to the extent the shares are taken up by shareholders who are not members of the group (they are non-controlling interest shareholders)
D)is only included to the extent the shares are taken up by the parent
Q2) When there is an acquisition or disposal of subsidiaries and business units:
A)the associated cash flows are classified as non-operating
B)the associated cash flows are allocated between operating, financing and investing activities
C)the resulting cash flows are classified as relating to investing activities
D)the associated cash flows are presented separately from those cash flows relating to investing, financing and operating activities.
Q3) If an entity provides a consolidated cash flow statement it does not have to provide an individual cash flow statement.
A)True
B)False
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Chapter 25: Equity Accounting Expanded and Joint Ventures
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Q1) A company that controls other companies may not use the cost method (cost or fair value under AASB 139) to account for associates in its own separate statements.
A)True
B)False
Q2) Note Ltd is an associate of Sound Ltd.Sound Ltd owns 20% of Note Ltd's issued capital.During the current financial year, Note Ltd sold inventory to Sound Ltd at a profit to Note Ltd of $100 000.All inventory is on hand at the end of the current year.Note Ltd reported a profit of $250 000 for the current year.What is Sound Ltd's share of Note Ltd's current period profit?
A)$50 000
B)$30 000
C)$70 000
D)$270 000
Q3) Jointly controlled operations (JCOs) are not legal entities and can not own assets or incur liabilities.
A)True
B)False
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Chapter 26: Segment Reporting
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Q1) Which of the following is not listed in AASB 8 as a factor to be considered when combining reportable segments?
A)the country in which the segments are located
B)the nature of the production processes
C)the type or class of customer for their products and services
D)the nature of the products and services
Q2) Under AASB 8 the objective is to provide disclosures:
A)about reportable operating segments
B)about material operating segments
C)that enable users of financial statements to evaluate the nature and financial effects of the business activities in which an entity engages and the economic environments in which it operates
D)about operating segments that satisfy the quantitative guidelines in AASB 8.13.
Q3) Gains on the sale of investments only form part of segment revenue if:
A)the segment is involved in the development and sale of houses and apartments
B)they are internally reported to senior management as part of segment profit or loss
C)he segment is involved in activities primarily of a financial nature
D)and only if they relate to investments in associates
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