Financial Accounting
Exam Solutions
Course Introduction
Financial Accounting is a foundational course that introduces students to the principles and practices of recording, classifying, and summarizing financial transactions for business entities. The course covers essential topics such as the preparation and interpretation of financial statements, the accounting cycle, accrual accounting, and the importance of generally accepted accounting principles (GAAP). Students will learn how to analyze financial information for decision-making and understand the ethical standards and regulatory environment affecting financial reporting. By the end of the course, students will be equipped with the necessary skills to evaluate the financial health of an organization and communicate financial information effectively to internal and external stakeholders.
Recommended Textbook
Understanding Australian Accounting Standards 1st Edition by Janice Loftus
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29 Chapters
798 Verified Questions
798 Flashcards
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Page 2
Chapter 1: Accounting Regulation and the Conceptual Framework
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Sample Questions
Q1) 'Ice-cream R Us' Ltd. just purchased a block of land, on which it will build a new factory for its operations. 'Ice-cream R Us' paid $500,000 cash to the land owner. An independent evaluation reveals that the land is worth $550,000. Using historical cost as a measurement base, how should 'Ice-cream R Us' recognise the land purchase in its financial statements?
A) $500,000 recognised as an asset (land).
B) $550,000 recognised as an asset (land).
C) $500,000 recognised as an asset (land) and $50,000 as a liability.
D) The land should not be recognised as an asset as it cannot be measured with reliability.
Answer: A
Q2) Some of the implications of adopting the going concern assumption are shown in the following accounting practices, except:
A) justification of using historical cost to measure value of assets.
B) depreciation of non-current assets.
C) liquidation of an entity's operations.
D) inclusion of goodwill in the statement of financial position.
Answer: C
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Chapter 2: Application of Accounting Theory
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Sample Questions
Q1) The risk aversion problem in shareholder-manager agency relationships arises because:
A) managers are more risk-averse than shareholders.
B) shareholders prefer less risk than do managers.
C) managers have less capital invested in the entity than shareholders.
D) shareholders are not able to diversify their risk.
Answer: A
Q2) An example of political costs is:
A) higher tax imposed on mining companies.
B) cost of implementing sound corporate governance arrangements.
C) having a debt covenant.
D) excessive consumption of perquisites.
Answer: A
Q3) An example of bonding costs is:
A) auditor's fees.
B) cost of implementing a management remuneration plan.
C) cost of preparing quarterly financial reports.
D) cost of setting up company's code of conducts.
Answer: C
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Page 4
Chapter 3: Shareholders Equity: Share Capital and Reserves
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Sample Questions
Q1) Which of the following is not a reason that companies may undertake a share buy-back?
A) as a defence against a hostile takeover
B) to manage the capital structure
C) to increase the worth per share of the remaining shares
D) as a way to efficiently manage surplus funds
Answer: A
Q2) In respect to the issue of shares by a company, what is an IPO?
A) Investment in Preference and Ordinary shares;
B) Initial Public Offering of shares;
C) Investment Prospectus for an issue of Options;
D) Instruments Providing Options to ordinary shareholders.
Answer: B
Q3) Which of the following does not appear in the Statement of Changes in Equity?
A) The non-controlling interest share of equity
B) Dividends declared but not yet paid at year end
C) Appropriations from retained earnings
D) The payment of a bonus dividend from a reserve
Answer: A
Page 5
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Chapter 4: Fair Value Measurement
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Sample Questions
Q1) Which are the two most common measures used in Accounting Standards?
A) fair value less costs to sell and cost
B) value in use and cost
C) cost and fair value
D) net realisable value and fair value.
Q2) 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
Q3) Which of the following is not assumed when measuring the fair value of an equity instrument?
A) The market participant transferee will take on the rights and responsibilities associated with the instrument
B) An entity's own equity instruments are transferred to a market participant at transfer date
C) An entity's own equity instrument would remain outstanding
D) The instrument would not be cancelled or otherwise extinguished on the measurement date.
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Page 6
Chapter 5: Revenue
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Sample Questions
Q1) The revenue that would be recorded by TelCo at the inception of the agreement is:
A) $166
B) $833
C) $1500
D) $3000
Q2) Which of the following disclosures are required under AASB 118?
I total income, allocated between revenue and other gains
II the accounting policies adopted for revenue recognition
III the amount of each significant category of revenue recognised during the period IV the amount of revenue arising from exchanges of goods and services.
A) I and II only
B) II, III and IV only
C) I, II and III only
D) I, II, III and IV
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Chapter 6: Provisions, Contingent Liabilities and Contingent Assets
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Sample Questions
Q1) Provisions shall be recognised when:
I an entity has a present obligation
II it is possible that an outflow of resources will be required to settle the obligation
III the amount of the obligation can be reliably estimated
IV there has been a past event
A) I, II and III
B) II, III and IV
C) I, III and IV
D) I, II and IV
Q2) An entity sells goods under warranty and past experience shows that minor defects account for 10% of sales and major defects account for 2% of sales. If all minor defects were repaired the warranty cost would be $300 000, and if all major defects were repaired the warranty cost would be $800 000. The expected value of the warranty cost is:
A) $0;
B) $22 000;
C) $46 000;
D) $86 000.
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Chapter 7: Income Taxes
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Sample Questions
Q1) Which of the following disclosures are optional under AASB 112?
A) the major components of income tax expense
B) the aggregate current tax or deferred tax that arises relating to items that are charged or credited directly to equity
C) the amount of deductible temporary differences and unused tax losses, for which no deferred tax asset is recognised in the statement of financial position
D) a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis of calculating the applicable tax rate.
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) 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.
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Page 9
Chapter 8: Financial Instruments
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Sample Questions
Q1) Which of the following events provide objective evidence that a financial asset has been impaired:
I A default in interest payments.
II The borrower enters into bankruptcy.
III Significant financial difficulty of the issuer.
IV The downgrade of an entity's credit rating.
A) I, II and III only;
B) II, III and IV only;
C) I, III and IV only;
D) II and IV only.
Q2) Which of the following is NOT a condition for hedge accounting to be applied?
A) There must be formal designation and documentation of the hedging relationship at the inception of the hedge.
B) The effectiveness of the hedge must be able to be reliably measured.
C) The hedge must be expected to be effective
D) For cash flow hedges, the forecast transaction must be highly probable.
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Chapter 9: Share-Based Payments
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Sample Questions
Q1) Reload features are accounted for as follows:
A) included in the fair value of the initial options granted at measurement date
B) separately from the initial options granted
C) as a market condition
D) as a modification to the initial terms and conditions of the initial options granted
Q2) A share-based payment transaction in which the entity receives goods or services as consideration for equity instruments of the entity is classified in AASB 2 Share-based Payment as
A) an equity-settled share-based payment transaction
B) a cash-settled share-based payment transaction
C) a liability-settled share-based payment transaction
D) an "other" share-based payment transaction
Q3) What is the liability component at the end of year 1?
A) $83 333
B) $90 000
C) $100 000
D) $108 000
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11
Chapter 10: Translation of the Financial Statements of Foreign Entities
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Sample Questions
Q1) 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
Q2) When translating the revenue and expenses in the statement of profit or loss and other comprehensive income, theoretically each item of revenue and expense should be translated using the spot exchange rate between the:
A) functional currency and the foreign currency on the reporting date;
B) presentation currency and the functional currency on the reporting date;
C) functional currency and the foreign currency on the date the transaction occurred;
D) presentation currency and the local currency on the transaction date.
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Chapter 11: Employee Benefits
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Sample Questions
Q1) Which if the following is NOT an example of a short-term employee benefit?
A) wages and salaries
B) termination payments
C) bonuses and profit-sharing arrangements
D) short-term compensated benefits
Q2) Actuarial gains or losses can arise from:
I \(\quad\)employee service provided in the current period
II \(\quad\)the unwinding of the discount applied to the obligation
III \(\quad\)changes to actuarial assumptions
IV \(\quad\)experience adjustments
A) I and II
B) II and III
C) III and IV
D) I and IV
Q3) AASB 119 requires short-term employee benefits to be measured at:
A) future value
B) nominal value
C) present value
D) fair value
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Page 13
Chapter 12: Inventories
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Sample Questions
Q1) Where the net realisable value of inventory falls below cost, AASB 102 Inventories, requires that:
A) the inventory continue to be carried in the Statement of Financial Position at cost;
B) the inventory be written down to net realisable value;
C) no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements;
D) the difference be added to the carrying amount of the inventory.
Q2) Stock take discrepancies between a count sheet and recorded quantities in the ledger may arise due to:
I Theft of stock during the year
II Stock purchased under FOB destination terms being in transit at period end
III A consignee including consignment stock in their physical count.
IV Sales returns not being processed into the ledger
A) I, II and III
B) II, III and IV
C) I, III and IV
D) I, II and IV
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14
Chapter 13: Property, Plant and Equipment
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Sample Questions
Q1) 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.
Q2) A change in accounting policy from the revaluation model to the cost model requires a retrospective adjustment to the:
A) revenue in the profit and loss statement
B) expenses in the profit and loss statement
C) opening balance of retained earnings
D) other comprehensive income.
Q3) An entity acquired an item of Plant in exchange for an item of Equipment. The Equipment has a carrying value of $5000 and a fair value of $6000. The journal entry to record the acquisition of the Plant will show:
A) a loss on acquisition of $1000;
B) proceeds on sale of Equipment of $1000; C) a gain on sale of $1000; D) proceeds on sale of Plant of $1000.
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15
Chapter 14: Leases
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Sample Questions
Q1) Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment. The incentive is cash amounting to $10 000 that will be paid on the date the lease agreement is signed. On inception of the lease, the lessor will record:
A) \(\begin{array} { l l l }
\mathrm { DR } & \mathrm { Cash } & \$ 10000 \\
\mathrm { CR } & \text { Incentive to lessee } &\$ 10000 \end{array}\)
B) \(\text { DR\quad Incentive to lessee } \quad \$ 10000\) \(\begin{array}{lll}
C R & \text { Cash } & \$ 10000 \end{array}\)
C) \(\text { DR\quad Rent income } \quad \$ 10,000\)
\(\text { CR } \quad \text { Rent expense } \quad \$ 10,000\)
D) \(\text { DR\quad Cash } \quad \$ 10000\)
\(\text { CR } \quad \text { Rent income } \quad \$ 10000\)
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Chapter 15: Understanding Australian Accounting Standards
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Sample Questions
Q1) The two key characteristics of intangible assets are that they are identifiable and that they:
A) have physical substance
B) are monetary assets
C) represent current obligations of the entity
D) lack physical substance
Q2) The recognition criteria that an asset must meet before it may be recognised and presented in the financial statements include:
A) that the recognition of the asset is relevant to user decision making;
B) probability that future economic benefits will flow to the entity;
C) that the information about the asset is neutral;
D) a likelihood that the cost of the asset is verifiable.
Q3) When an intangible asset is acquired by an exchange of assets, which of the following measures will need to be considered in the determination of that cost?
A) The fair value of the asset given up.
B) The initial cost of the asset given up.
C) The carrying amount of the asset received.
D) The replacement cost of the asset received.
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Chapter 16: Impairment of Assets
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Sample Questions
Q1) At reporting date Guilder Limited estimated an impairment loss of $50 000 against its single cash-generating unit. The company had the following assets: Headquarters Building $100 000; Plant $60 000; Equipment $40 000. The net carrying amount of the Plant after allocation of the impairment loss is:
A) $60 000
B) $45 000
C) $35 000
D) $10 000.
Q2) Value in use is:
A) amount obtainable from disposal of an asset excluding any selling costs
B) initial cost of an asset less any expected disposal costs
C) incremental costs directly attributable to disposal of an asset
D) the present value of future cash flows expected to be derived from an asset
Q3) When an asset is measured using the revaluation model, any impairment loss is treated as:
A) a revaluation decrement
B) a revaluation increment
C) a set-off against depreciation expense
D) an addition to depreciation expense.
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Page 18
Chapter 17: Accounting for Mineral Resources
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Sample Questions
Q1) Which of the following methods tends to be restricted to small mining companies in South Africa?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method
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) Which of the following methods involves capitalizing exploration and evaluation costs using a larger cost centre than an area of interest such as a country of region?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method
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19
Chapter 18: Agriculture
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Sample Questions
Q1) AASB 141 requires disclosure of which of the following relating to government grants?
A) the nature and extent of grants recognised, unfulfilled conditions attached to the grant and significant increases expected in the level of government grants.
B) the nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted
C) unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted
D) the nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and significant decreases expected in the level of government grants.
Q2) Which standard was issued in 2011 that amended AASB 141?
A) AASB 7
B) AASB 101
C) AASB 118
D) AASB 13
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20
Chapter 19: Financial Statement Presentation
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Sample Questions
Q1) Under AASB 101 profit or loss attributable to non-controlling interests is prescribed for presentation in:
A) an equity statement
B) a statement of financial position
C) a statement of profit or loss and other comprehensive income
D) a statement of cash flows.
Q2) If an entity receives information after end of reporting period that one of its assets was impaired at end of reporting period by a material amount it must:
A) adjust the amounts recognised in the financial statements to reflect the impairment;
B) notify all shareholders in writing;
C) disclose the impairment in the notes but not recognise the amount in the financial statements;
D) include the impairment loss as a contingent liability.
Q3) Under AASB 101, financial statements must be prepared and presented at least: A) annually;
B) half-yearly;
C) each three months;
D) at the end of each month of operations.
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Chapter 20: Statement of Cash Flows
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Sample Questions
Q1) Brett Limited had a net profit after tax of $850 000 for the financial year. Included in this profit was:
Depreciation expense of $120 000
Gain on sale of Investments of $28 000
Also, Accounts Receivable increased by $39 000 and Inventories decreased by $12 000. The cash flow from operating activities during the year was:
A) $731 000
B) $785 000
C) $915 000
D) $969 000.
Q2) The following cash flow activities are regarded as investing cash flows:
A) income taxes paid
B) interest paid
C) acquisition of subsidiary net of cash acquired
D) proceeds from issue of debentures.
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22
Chapter 21: Earnings Per Share
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Sample Questions
Q1) EPS refers to:
A) equity per share
B) earnings per shareholder
C) earnings per share
D) earnings per subsidiary
Q2) The basic earnings per share at 30 June 2014 is:
A) $0.80
B) $0.96
C) $3.50
D) $4.00
Q3) Under paragraph 4, if an entity presents both consolidated and separate financial statements, the AASB 133 disclosures need only be determined on the basis of:
A) parent entity only
B) subsidiary entities only
C) consolidated information
D) the entity has choice of either parent entity or consolidation
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23
Chapter 22: Operating Segments
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Q1) Which of the following information is not required to be disclosed by entities complying with AASB 8?
A) the identity of external customers from which the entity earns at least 10% of its revenue;
B) the total of the reportable segments' liabilities to the entity's liabilities;
C) the nature and effect of the changes in measurement of segment profit or loss;
D) revenues from external customers located in foreign countries.
Q2) AASB 8 Operating Segments applies to:
I. public companies
II. listed entities
III. entities in the process of listing
IV. any entity who voluntarily chooses to apply it
A) I, II and III only;
B) II, III and IV only;
C) I, II and IV only;
D) I, III and IV only.
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Chapter 23: Operating Segments
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Q1) Which of the following is the related party of a reporting entity within the scope of AASB 124?
A) The domestic partner of a director of the reporting entity.
B) A supplier of the reporting entity.
C) The non-dependent children of the reporting entity's CEO.
D) Another subsidiary of the reporting entity's parent.
Q2) According to AASB 124, related party disclosures are required irrespective of whether there have been related party transactions when:
A) significant influence exists;
B) control exists;
C) economic dependence exists;
D) all of the above.
Q3) An entity is related to a reporting entity if any of the following conditions apply, except:
A) the reporting entity has significant economic dependence on the entity;
B) both entities are joint venture of the same third party;
C) the entity is the subsidiary of the reporting entity;
D) the entity is a post-employment benefit plan for the reporting entity's employees.
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Chapter 24: Business Combinations
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Q1) Under AASB 3 the method of accounting for a business combination is the:
A) joint venture method
B) purchase method
C) market value method
D) acquisition method
Q2) Bolton Limited acquires the net assets of Pamelia Limited for a cash consideration of $100 000. One half is to be paid on acquisition date and one half is payable in one year's time. The appropriate discount rate is 10% p.a. The present value of the cash outflow in one year's time is:
A) $45 454
B) $50 000
C) $54 545
D) $55 000
Q3) The information contained within Appendix B of AASB 3 in relation to disclosure:
A) is not mandatory, but contains optional additional disclosures
B) contains prescribed presentation formats for disclosure of business combinations
C) is an integral part of AASB 3
D) is complementary to the main disclosure requirements within the body of AASB 3
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Chapter 25: Consolidation: Principles and Accounting Requirements
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Q1) Which of the following statements is correct about the above business combination?
A) There is gain on bargain purchase of $45 000 to be recognised.
B) There is goodwill of $45 000 to be recognised.
C) There is gain on bargain purchase of $3000 to be recognised.
D) There is goodwill of $3000 to be recognised.
Q2) 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.
Q3) When a dividend is paid by a wholly-owned subsidiary out of pre-acquisition equity, the parent entity recognises:
This is explained more in Chapter 26.
A) a reduction in the investment in the subsidiary
B) a decrease in share capital
C) an increase in dividend income
D) a decrease in dividend revenue.
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Page 27
Chapter 26: Consolidation: Intragroup Transactions
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Q1) Winter Limited paid an interim dividend of $5 000 to its parent entity. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction?
I made a change to the original question, as the original question is very similar to Q4.
A) No tax effect entry required.
B) DR Deferred Tax Asset $1 500
C) DR Income Tax Expense $1 500
D) DR Retained Earnings $1 500
Q2) The test indicating that an intragroup business transaction has been realised is:
A) the involvement of an external party in the transaction.
B) the generation of profit from the transaction.
C) whether or not an operating profit or loss occurred as a result of the transaction.
D) the presence of only entities within the group as parties to the transaction.
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Chapter 27: Consolidation: Non Controlling Interest
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Q1) Lu Nan Limited acquired 70% of the share capital and reserves of Hui Limited for $36 000. Share capital was $18 000 and reserves amounted to $10 800. All assets and liabilities were recorded at fair value except plant which was recorded at $2500 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Lu Nan Limited in this business combination was:
A) $8 640
B) $9 165
C) $10 800
D) $14 615.
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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29
Chapter 29: Joint Arrangements
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Q1) Three joint operators are involved in a joint operation that manufactures ships chandlery. At the beginning of the year the joint operation held $50 000 in cash. During the year the joint operation incurred the following expenses: Wages paid $20 000, Overheads accrued $10 000. Additionally creditors amounting to $40 000 were paid and the joint operators contributed $15 000 cash each to the joint operation. The balance of cash held by the joint operation at the end of the year is:
A) $ 5000;
B) $25 000;
C) $35 000;
D) $75 000.
Q2) The value of inventory distributed to Abel Ltd by the joint venture and subsequently sold by 30 June 20X1 is:
A) $425 000;
B) $850 000;
C) $900 000;
D) $1 700 000.
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Chapter 30: Associates and Joint Ventures
Available Study Resources on Quizplus for this Chatper
26 Verified Questions
26 Flashcards
Source URL: https://quizplus.com/quiz/70198
Sample Questions
Q1) Where an acquisition in an associate results in an excess the excess is accounted for in the year of acquisition as follows:
A) as a credit against the investment in associate account.
B) as a credit against the share of associate profit account.
C) as a debit against the share of associates retained earnings
D) no adjustment is required due to the single line method of accounting followed under the equity method.
Q2) Where an investor has discontinued the use of the equity method because the associate has incurred losses it must disclose the:
A) unrecognised share of current period and cumulative losses of the associate;
B) reason why it has discontinued the method;
C) accounting policy it has adopted in place of the equity method;
D) effect on the statement of changes in equity if it had continued to use the method.
Q3) At 30 June 20X7 the equity accounted balance of the investment in Leo was:
A) NIL
B) ($3500)
C) $4000
D) $16 000
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