Financial Reporting and Analysis
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Course Introduction
Financial Reporting and Analysis provides students with a comprehensive understanding of the accounting principles, rules, and financial statements that are critical for external reporting. The course explores key concepts such as revenue recognition, asset and liability valuation, income measurement, and the preparation and interpretation of balance sheets, income statements, and cash flow statements. Emphasis is placed on analyzing and interpreting financial information to assess an organization's financial health, performance, and value. Students will learn to evaluate the impact of accounting choices and disclosures on reported results and develop skills necessary for making informed business and investment decisions.
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Australian Financial Accounting 7th Edition by Craig Deegan
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Chapter 1: An Overview of the Australian External Reporting Environment
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Q1) Section 296 of the Corporations Act requires (all or in part):
A) the AASB to follow the broad strategic direction determined by the FRC.
B) the directors to make a declaration stating whether, in their opinion, the financial statements comply with accounting standards.
C) the AASB to develop a conceptual framework, not having the force of an accounting standard, for the purpose of evaluating accounting standards and international standards.
D) a company's directors to ensure that the company's financial statements for a financial year comply with accounting standards.
Answer: D
Q2) The role of the Financial Reporting Council is to provide broad oversight of the process for setting standards in Australia,including the authority to direct the AASB to develop,amend or revoke a particular standard.
A)True
B)False
Answer: False
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance
to Financial Reporting
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Q1) Which of the following is/are characteristics of 'comparability'?
A) Users must be able to compare the financial reports of an entity with the financial reports of a shareholder.
B) Users must be able to compare the current financial reports with prior period financial reports of an entity.
C) Users must be able to compare the financial reports of an entity with the financial reports of another entity.
D) Users must be able to compare the current financial reports with prior period financial reports of an entity and users must be able to compare the financial reports of an entity with the financial reports of another entity.
Answer: D
Q2) In accordance with IASB Conceptual Framework which of the following transaction(s)is/are consistent with a definition of income?
A) collection of accounts receivable
B) debt forgiveness
C) issue of share capital
D) collection of accounts receivable and debt forgiveness
Answer: B
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Chapter 3: Theories of Accounting
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Q1) The pharmaceutical industry has been criticised in the financial press for recognising excessive profits and investing less in research and development so that the government is threatening the removal of tax concessions to the industry.Under these conditions,PAT predicts that pharmaceutical companies are subject to ___________ costs and are likely to adopt _________________ accounting policies
A) agency; income increasing
B) agency; income decreasing
C) political; income increasing
D) political; income decreasing
Answer: D
Q2) As part of the company's compensation plan,a chief executive officer (CEO)is paid 1% of net profit if net profit exceeds $20 00 000 but no more than $40 000 in a given year.It is estimated that net profit for the year will exceed $45 00 000.Under PAT the CEO will likely adopt which accounting policy
A) decrease reported profit as much as he can
B) decrease reported profit to $20 00 000
C) increase reported profit as much as he can
D) increase reported profit up to $40 00 000
Answer: D
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Chapter 4: An Overview of Accounting for Assets
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Q1) The preserved body of famous Australian racehorse Phar Lap is an example of a heritage asset.
A)True
B)False
Q2) For an asset to be recognised it is essential that it be acquired by purchase or exchange of another asset.
A)True
B)False
Q3) Discuss various measurement rules that can be adopted for measurement of assets.
Q4) It is expected that the service potential of a non-current asset will decline over time.The appropriate accounting treatment is to:
A) amortise the asset over its useful life.
B) disclose the effect in the notes to the statement of financial position if it is material in nature.
C) write-off the asset.
D) accrue the difference as a payable in adjusting entries at the end of the period.
Q5) Discuss the accounting treatment for restoration costs with respect to acquisition of assets.
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Chapter 5: Depreciation of Property, plant and Equipment
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Q1) Swans Ltd constructed a building on a property already owned by the football club.Which of the following items should be included in determining the depreciable amount of the building?
A) architect's fees
B) interest during construction
C) promotional expense
D) architect's fees and interest during construction
Q2) Explain why the combined cost of acquiring land and building is required to be apportioned to each specific asset and accounted for separately as per AASB 116? What aspects of this provision is presumed inconsistent with the manager's view under Positive Accounting Theory?
Q3) AASB 116 requires disclosure of a reconciliation of the carrying amount at the beginning and end of the period for depreciable assets.This reconciliation includes:
A) additions and disposals.
B) impairment gains recognised in the statement of financial position.
C) depreciation.
D) additions and disposals and depreciation.
Q4) Discuss how the useful life of a depreciable asset is determined.
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Chapter 6: Revaluations and Impairment Testing of
Non-Current Assets
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Q1) Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset.
A)True
B)False
Q2) Under AASB 116 when an asset is revalued and the gross method is used,accumulated depreciation:
A) must be written back to profit.
B) must be closed off to reduce the asset account.
C) is ignored during revaluation as it has not effect on carrying amount.
D) should be increased by the same proportion as the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals the revalued amount.
Q3) AASB 138 will permit some intangible assets to be revalued upwards only when there is an 'active market' for the asset.
A)True
B)False
Q4) Discuss the potential usefulness of the gross method in revaluation of non-current assets.
Q5) Differentiate depreciation expense from impairment loss.
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Chapter 7: Inventory
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Q1) AASB 102 requires that fixed manufacturing costs be excluded from the cost of inventories,as they cannot be allocated accurately.
A)True B)False
Q2) The only difference between IAS 2 and AASB 102 is that the 'international' standards allow inventory to be valued using LIFO.
A)True B)False
Q3) AASB 102 provides that not-for-profit entities:
A) must value their assets at the lower of cost or net realisable value to allow reports to be compared.
B) should only report inventories at cost for simplicity.
C) should value their assets at either cost or current replacement cost, whichever is more beneficial.
D) will record the inventories at the lower of cost or current replacement cost.
Q4) What is the implication on valuation of work-in-progress inventories when the net realisable value is lower than the carrying amount of the asset?
Q5) Identify and discuss the items included as inventory cost.
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Chapter 8: Accounting for Intangibles
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Q1) Explain how AASB 138 Intangible Assets may advantage Australian companies with heavy research and development activities.Contrast this with US companies.
Q2) In order to determine whether or not expenditure should be treated as an intangible asset,the relevant test to apply in Australia is:
A) It should be recognised when (a) it is definite that future economic benefits will eventuate or (b) the asset possesses a cost or other value that can be measured reliably.
B) It should be recognised if (a) the expenditure is with an external party in an arm's length transaction for a separately identifiable intangible asset or (b) the intangible asset arises as the difference between the net tangible assets of an entity and the price paid for that entity.
C) It should be recognised if (a) it is part of a specified plan by management to develop and maintain a separately identifiable asset or (b) the intangible asset was purchased in an arm's length transaction and is actively traded in a market.
D) It should be recognised when and only when (a) it is probable that future economic benefits will eventuate and (b) the asset possesses a cost or other value that can be measured reliably.
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Chapter 9: Accounting for Heritage Assets and Biological Assets
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Q1) Outline the different ways an entity engaged in agricultural activity could recognise revenue.
Q2) A recognition criterion for assets is that the entity reporting them should have control (but not necessarily ownership)of them.Heritage assets often have features that make the establishment of control difficult.These features include:
A) The interrelationships between legislation and regulations governing heritage assets may make it difficult to establish which government agency has ultimate control over the asset.
B) It can be difficult to control access to a range of heritage assets.
C) The government agency with responsibility for the heritage asset may be restricted in what it may do with the asset.
D) all of the given answers.
Q3) AASB 1037 and AASB 141 have been criticised on the grounds that:
A) their affect is to overstate the payout ratio relative to companies in the US.
B) they emphasise reliability over relevance in asset measurement.
C) they limit the accounting methods available to report on these types of assets.
D) they will hinder the timely production of financial reports.
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Page 11
Chapter 10: An Overview of Accounting for Liabilities
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Q1) What is the treatment of contingent liabilities in the financial statements?
A) Contingent liabilities are to be recognised as a separate category in the statement of financial position, with a clear note disclosure of the factors that constitute the contingent event for each material contingent liability.
B) Contingent liabilities are required to be disclosed in the notes to the financial statement when the amount of the obligation cannot be measured with sufficient reliability.
C) Material contingent liabilities only are required to be recognised in the financial statements under AASB 137.
D) Contingent liabilities are to be disclosed in the notes to the accounts in categories that reflect their nature and possible timing.
Q2) The defining characteristic of a 'provision' as opposed to other liabilities is that the existence of an obligation is uncertain.
A)True
B)False
Q3) In terms of accounting treatment debentures and bonds are the same thing.
A)True
B)False
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Chapter 11: Accounting for Leases
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Q1) If the lease arrangement contains a bargain purchase option,it is reasonable to assume that the risks and rewards of ownership are transferred to the lessee.
A)True
B)False
Q2) Lease incentives are:
A) not covered by AASB 117 and therefore may lead to divergent practices.
B) revenues for the lessees and may be recorded in the initial period of the lease contract.
C) designed to entice lessees to enter into non-cancellable operating leases.
D) not covered by AASB 117 and therefore may lead to divergent practices and designed to entice lessees to enter into non-cancellable operating leases.
Q3) Describe how a lessee would account for the depreciation (amortisation)of a leased asset.
Q4) Contingent rent is included in the determination of minimum lease payments under AASB 117 Leases.
A)True
B)False
Q5) Explain the benefits of a sale and leaseback transaction.
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Chapter 12: Accounting for Employee Benefits
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Q1) Entity A contributes to a defined benefit superannuation plan for its employees.It calculates the following:
\[\begin{array} { | l | r | }
\hline \text { Present value of the obligation } & 25569 \\
\hline \text { Fair value of plan assets } & \underline { 25500 } \\
\hline & \underline { 69 } \\
\hline
\end{array}\]
The 69 represents:
A) the expense to be recognised in the statement of comprehensive income.
B) the asset to be recognised in the statement of financial position.
C) the liability to be recognised in the statement of financial position.
D) the revenue to be recognised in the statement of comprehensive income.
Q2) Post-employment benefits can include the employee's insurance and medical costs.
A)True
B)False
Q3) Long-service leave that is payable beyond 12 months after the financial year is to be measured at its present value.
A)True
B)False
Page 14
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Chapter 13: Share Capital and Reserves
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Q1) Shares may be issued for consideration other than cash including:
A) promissory notes.
B) contracts for future services.
C) real or personal property.
D) all of the given answers.
Q2) A redeemable preference share is one that may be:
A) converted into debt at the option of the shareholder.
B) converted into cash at the option of either the company or the shareholder.
C) forgiven any future calls where the company has profits in excess of specified levels.
D) have any dividends converted into further preference shares rather than receiving them in cash.
Q3) An effect of a bonus issue to all shareholders is to:
A) increase the total amount of shareholders' funds.
B) make the amount that was previously recorded as retained earnings no longer available for the payment of cash dividends.
C) alter the current shareholders' proportionate share of the company's net assets.
D) increase the total assets of the company.
Q4) Explain the differences between a rights issue and share options.
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Page 15
Chapter 14: Accounting for Financial Instruments
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Q1) Which of the following ratios are used as an indicator of the inherent risk in investing in an entity?
A) quick
B) current
C) leverage
D) gross profit
Q2) Which of the following are examples of derivative financial instruments?
A) deferred tax and future income tax benefits
B) mortgage loans
C) participating, redeemable preference shares
D) share options
Q3) Once a financial instrument has been classified as a liability in the statement of financial position,under AASB 132 the reporting entity is not permitted to reclassify it unless a specific transaction or other specific action by the holder or issuer of the instrument alters the substance of the financial instrument.
A)True
B)False
Q4) What is a foreign currency swap and discuss why organisations enter into swap arrangements with other parties?
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Chapter 15: Revenue Recognition Issues
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Q1) Lonsdale Ltd sells mobile phones and provides a one-year warranty.Lonsdale is able to recognise revenue at point-of-sale in accordance with IASB (2011)because:
A) this is industry practice.
B) repairs are unlikely within a year of sale.
C) cost of repairs can be estimated based on experience and this is recognised as warranty expense in the year of sale.
D) cost of repairs can be estimated based on experience and this is recognised as sales returns.
Q2) Bellarine Ltd is publisher of Mode magazine and its customers usually sign a three-year subscription with an advance payment of $500.Mode magazine has 12 issues in a year.What is the appropriate accounting treatment for this sale on the date of signing that is in accordance with IASB (2011)Revenue?
A) Recognise revenue in full as this is an immaterial amount.
B) Recognise the sale as a provision.
C) Recognise the sale as unearned revenue.
D) Disclose the sale in the notes as a contingent item.
Q3) Discuss how the use of call and put options affect revenue recognition for sales of merchandise with associated conditions.
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Chapter 16: The Statement of Comprehensive Income and Statement of Changes in Equity
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Q1) An item must be outside the ordinary operations of the business or be of a non-recurring nature to be classified as an extraordinary item under AASB 101.
A)True
B)False
Q2) Where a change in accounting estimates occurs,the following should be disclosed:
A) the fact that the amount of the effect on future periods will not be disclosed because estimating that amount is impracticable.
B) the reason for the change and comparative data to show the effect with and without the change.
C) the nature of the change and the impact on previous income statements.
D) the fact that the amount of the effect on future periods will not be disclosed because estimating that amount is impracticable and the reason for the change and comparative data to show the impact with and without the change.
Q3) The income statement under AASB 101 is designed to report all revenues and expenses to determine profit or loss.
A)True
B)False
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Chapter 17: Accounting for Share-Based Payments
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Q1) AASB 2 states that when goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets,they shall be recognised as: A) liabilities.
B) equity.
C) income.
D) expenses.
Q2) AASB 2 requires the remeasurement of equity-settled transactions at fair value at reporting date.
A)True
B)False
Q3) If a grant of equity instruments is conditional upon satisfying specified vesting conditions,the vesting conditions shall be taken into account in estimating the fair value of the instruments at measurement date.
A)True
B)False
Q4) Discuss the three main headings required to be disclosed by AASB 2 with respect to share-based payments.
Q5) Briefly describe the keys points of AASB 2.
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Chapter 18: Accounting for Income Taxes
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Q1) A company has a loan with a carrying value of $60 000.The payment of the loan is not deductible for tax purposes.The tax rate is 30%.What is the tax base for this item?
A) $0
B) $60 000
C) $18 000
D) $78 000
Q2) The generally accepted (a)accounting rule and (b)tax rule for development expenditure are:
A) (a) capitalise and amortise; (b) a tax deduction when paid for.
B) (b) expense when paid for; (b) a tax deduction when paid for.
C) (c) capitalise and amortise; (b) a tax deduction when amortised.
D) (d) expense when paid for; (b) a tax deduction when amortised.
Q3) When a non-current asset is revalued,the recognition of future tax associated with an asset that has a fair value in excess of cost,acts to reduce the amount of the revaluation reserve.
A)True
B)False
Q4) Discuss the assumptions made when recognising a deferred tax asset or a deferred tax liability.
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Chapter 19: The Statement of Cash Flows
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Q1) AASB 107 requires disclosures about non-cash financing and investing activities.
A)True
B)False
Q2) The following are cash flow transactions for Mungo Ltd: \(\begin{array}{|l|l|}
\hline \text { I } & \text { Changes in inventories } \\
\hline \text { II } & \text { Changes in operating receivables } \\
\hline \text { III } & \text { Non-cash items } \\
\hline \text { IV } & \text { Changes in operating payables } \\
\hline \mathrm{V} & \text { Purchase of property plant and equipment } \\
\hline \mathrm{VI} & \text { Issue of ordinary shares } \\ \hline
\end{array}\)
Which of the following combinations includes all of the transactions that will determine cash flows from operating activities of Mungo Ltd that are in accordance with AASB 107 Statement of Cash Flows?
A) I, II, III, IV and V
B) I, II, III, IV and VI
C) I, II, III and IV
D) I, II and III
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Chapter 20: Accounting for the Extractive Industries
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Q1) Key issues in accounting for entities in the extractive industries include:
A) determining the size of the deposits of natural substances in the area of interest.
B) determining whether an asset has been acquired through the expenditures associated with exploration, evaluation and development.
C) allocating revenues to the periods in which they are earned.
D) determining the cost of capital in such a high-risk industry.
Q2) Which of the following statements is correct?
A) AASB 6 requires disclosure of accounting policies for exploration and evaluation expenditures.
B) AASB 137 Provisions, Contingent Liabilities and Contingent Assets provides guidance on obligations of an entity for restoration costs.
C) Exploration and evaluation assets are required in AASB 6 to be classified as intangible assets.
D) AASB 6 requires disclosure of accounting policies for exploration and evaluation expenditures and AASB 137 Provisions, Contingent Liabilities and Contingent Assets provides guidance on obligations of an entity for restoration costs.
Q3) Discuss the recognition of revenue for the extractive industries.
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Chapter 21: Accounting for General Insurance Contracts
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Q1) In undertaking a liability adequacy test the present value of future claims must be compared with unearned premiums.
A)True
B)False
Q2) General insurance is an important part of the economy as it:
A) enables entities to reduce their risk exposure.
B) benefits society by safeguarding individuals' homes.
C) encourages investment in particular activities.
D) All of the given answers are correct.
Q3) Discuss 'expected future payments' as referred to in AASB 1023 General Insurance Contracts.
Q4) Outstanding claims should be recognised as liabilities,as should any insurance premiums received in advance but not yet earned.
A)True
B)False
Q5) General insurance refers to the provision of insurance for losses associated with events such as fire,flood,storms and vehicle accidents.
A)True
B)False
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Chapter 22: Accounting for Superannuation Plans
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Q1) Superannuation funds are monitored and regulated by the Australian Vigilance Regulation Authority and the Australian Securities and Investments Commission.
A)True
B)False
Q2) What are the implications of not having the force of law in adopting the requirements of AAS 25 on financial reports?
Q3) According to AAS 25,beneficiaries of a defined contribution plan will be interested in evaluating:
A) the performance of trust management in preserving the plan's assets.
B) the plan's ability to meet its obligations to members and beneficiaries.
C) the plan's ability to meet its debts as they fall due.
D) the plan's ability to provide an adequate level of benefits for members and beneficiaries.
Q4) AAS 25 requires all liabilities of a superannuation plan to be discounted to their present value at reporting date.
A)True
B)False
Q5) Discuss the options available for defined benefit superannuation plans.
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Chapter 23: Events Occurring After the End of the Reporting Period
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Q1) Disclosures required by AASB 110 relating to subsequent events that affect on the going concern status of the entity include:
A) the period over which the entity is expected to be able to continue trading.
B) assets for which the going concern basis is not appropriate, the carrying amounts and the amounts for which the assets are expected to be realised.
C) the directors' proposal for action to address the difficulties that have emerged since reporting date.
D) the period over which the entity is expected to be able to continue trading and assets for which the going concern basis is not appropriate, the carrying amounts and the amounts for which the assets are expected to be realised.
Q2) Which of the following indicators is not an example of an event that casts doubts on the going concern status of the business?
A) a court decision with immaterial damages against the business
B) major uninsured fire damage
C) recoverability of trade receivables during a recession
D) denial of a significant credit line
Q3) Discuss the two types of events after the reporting period.
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Chapter 24: Segment Reporting
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Q1) The guidelines for determining that a segment is reportable in accordance with AASB 8 include:
A) Its segment result, whether a profit or loss, is 10 per cent or more of the combined result of all segments that earned a profit or the combined result of all segments that incurred a loss, whichever is the greater absolute amount.
B) Its segment result, if a profit, is 10 per cent or more of the combined result of all segments that made a profit, or if the segment made a loss, its loss is 10 per cent or more of the absolute amount of the total segment losses.
C) Its segment result, whether a profit or loss, is 10 per cent or more of the absolute value of the combined results of all segments.
D) Its segment result, whether a profit or loss, is 10 per cent or more of the combined result of all segments that earned a profit or the combined result of all segments that incurred a loss, whichever is the lesser absolute amount.
Q2) AASB 8 bans the disclosure of segments that do not pass the '10 per cent test'.
A)True B)False
Q3) Explain the reconciliation information AASB 8 requires for segment reporting.
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Chapter 25: Related Party Disclosures
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Q1) The annual remuneration report of the entity is to be put to a non-binding vote of the shareholders.
A)True
B)False
Q2) A frequently applied practice in relation to the disclosure of related-party transactions of directors is to:
A) make a general statement that there were some transactions.
B) not report that there were any transactions.
C) state that the transaction is at arm's length terms and conditions.
D) specify the number, nature and amount of the transactions with comparisons to arm's length transactions of a similar nature and type.
Q3) Some business leaders argue that related-party transactions have benefits for the reporting entity.The benefits are said to include:
A) lower legal costs associated with contracts.
B) increased profits for the related entity.
C) reduced competition among suppliers.
D) better, more reliable service and better prices.
Q4) Discuss the objective of AASB 124 Related Party Disclosures.
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Chapter 26: Earnings Per Share
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Q1) Which of the following entities is not in the scope of AASB 133 Earnings per Share?
A) partnerships
B) reporting entities in the process of listing on the Australian Stock Exchange
C) entities that voluntarily disclose earnings per share
D) reporting entities with listed ordinary shares
Q2) Bates Ltd has 6 000 000 ordinary shares on issue at the beginning of the year,1 July 2013.These shares were issued at $4.00 each and have a current market value of $6.25.On 1 February 2014,Bates Ltd bought back 300 000 ordinary shares originally issued at $4.50 for $5.60 each.On 1 May 2014,1 000 000 fully paid-up shares were issued at the current market value.What is the weighted-average number of shares calculated in accordance with AASB 133?
A) 6 059 452
B) 6 196 552
C) 6 041 096
D) 6 627 397
Q3) What are the effects of discontinued operations in the reporting of earnings per share?
Q4) Describe the AASB 133 EPS disclosure requirements.
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Page 28
Chapter 27: Accounting for Group Structures
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Q1) 'Control' exists when the parent owns less than half of the voting power of an entity when:
A) No other entity owns more than half either.
B) There is power to govern the financial and operating policies of the entity under a statute.
C) There is power to govern the financial and operating policies of the entity under an agreement.
D) There is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement.
Q2) In determining control,'potential voting rights':
A) include those rights embedded in such instruments as share call options and share warrants.
B) which are currently exercisable should be taken into account.
C) even if they are not currently exercisable should be taken into account.
D) include those rights embedded in such instruments as share call options and share warrants and which are currently exercisable.
Q3) What are the three key elements of the definition of control?
Enumerate several factors that may provide an indication of control.
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Page 29
Chapter 28: Further Consolidation Issues I: Accounting for
Intragroup Transactions
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Q1) A non-current asset was sold by Subsidiary Limited to Parent Limited during the 2013/14 financial year.The carrying amount of the asset at the time of the sale was $1 400 000.As part of the consolidation process,the following journal entry was passed.
\(\begin{array}{|l|r|l|}
\hline 30 \text { June } 2014 & & \\
\hline \text { Dr Profit on sale of asset } & 400000 & \\
\hline \text { Dr Asset } & 600000 & \\
\hline \text { Cr Accumulated depreciation } & & 1000000 \\
\hline
\end{array}\) What (a)amount did Parent Limited pay Subsidiary Limited for the asset; (b)was the cost of the asset as shown in the books of Subsidiary Limited?
A) (a) $1 800 000; (b) $1 400 000
B) (a) $1 800 000; (b) $1 600 000
C) (a) $1 400 000; (b) $2 400 000
D) (a) $1 800 000; (b) $2 400 000
Q2) The term 'cum div' is used when shares are being bought with a dividend entitlement.
A)True
B)False
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Chapter 29: Further Consolidation Issues II: Accounting for
Non-Controlling Interests
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Q1) AASB 101 Presentation of Financial Statements requires an entity to disclose separately in the statement of comprehensive income,profit or loss for the period attributable to non-controlling interests and owners of the parent.
A)True
B)False
Q2) Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?
A) A non-controlling interest is defined as equity in a subsidiary not attributable, directly or indirectly, to a parent.
B) Under the entity concept, if subsidiaries are partly owned by the parent entity, both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary's profits, dividend payments, and share capital and reserves.
C) Under the entity concept, non-controlling interests will be shown as a liability.
D) Under the proprietary concept, non-controlling interests will be shown as a liability.
Q3) Discuss the three elements considered when calculating non-controlling interests.
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Chapter 30: Further Consolidation Issues IV: Accounting for
Changes in the Degree of Ownership of a Subsidiary
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Q1) Discuss the accounting treatment for the current year's profit and loss earned by the subsidiary from the start of the financial period to the date the parent loses control of this subsidiary.
Q2) Provide reasons for not recognising any gain or loss on subsequent changes in ownership after control has been achieved as outlined in the Basis for Conclusions that accompanied the release of IFRS 10 Consolidated Financial Statements.
Q3) Where a parent entity with a controlling interest in a subsidiary obtains additional equity,the carrying amounts of the controlling and non-controlling interests should be adjusted to reflect the changes in their relative interests in the subsidiary.Any difference between the fair value paid and the carrying amount of the additional interest acquired is recognised directly in profit or loss of the parent entity.
A)True
B)False
Q4) Explain how the gain or loss is calculated for: (a)the parent's investment; (b)the economic entity; when the parent sells some of its shares in a subsidiary.
Q5) Discuss what happens when a parent loses control over a subsidiary
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Chapter 31: Accounting for Equity Investments,including
Investments in Associates and Joint Arrangements
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Q1) Explain the term 'significant influence',and how it is determined,including several factors that need to be considered when making such determination
Q2) In respect of its interests in joint operations,AASB 11 Joint Arrangements prescribes a joint operator to recognise in its financial statements,the assets that it controls and the liabilities that it incurs,and the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint operation.
A)True
B)False
Q3) Examples of bonds include:
A) debentures.
B) options.
C) preference shares.
D) accounts payable.
Q4) Discuss the accounting treatment for a joint venture as prescribed in AASB 128 Investments in Associates and Joint Ventures.
Q5) Discuss why management is motivated to make both short-term and long-term equity investments?
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Chapter 32: Accounting for Foreign Currency Transactions
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Q1) Which of the following statements is correct with respect to AASB 121 The Effects of Changes in Foreign Exchange Rates?
A) Foreign currency transactions are recorded, on initial recognition in the presentation currency, by applying to the foreign currency amount the spot exchange rate between the presentation currency and the foreign currency at the date of the transaction.
B) At each end of the reporting period, foreign currency monetary items shall be translated using the closing rate.
C) At each end of the reporting period non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction.
D) At each end of the reporting period, non-monetary items that are measured at fair value in a foreign currency shall be translated using closing rate.
Q2) According to AASB 123 a qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale.
A)True
B)False
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Chapter 33: Translating the Financial Statements of Foreign Operations
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Q1) The exchange rate used for the translation of the payment of dividends is the spot rate at the date when the retained earnings or reserves,from which the dividends were drawn,were created.
A)True
B)False
Q2) When translating the financial statements of a foreign operation to presentation currency,AASB 121 requires any gain or loss on translation of the accounts to be:
A) recognised as a revenue or expense in the statement of comprehensive income.
B) transferred to a reserve in the equity section of the statement of financial position.
C) deferred and amortised over a period not greater than 20 years.
D) written off against the non-monetary assets of the foreign operation with any balance remaining recognised as a revenue or expense in the period.
Q3) The 'spot rate' is:
A) the rate for delivery the next day of currencies to be exchanged.
B) the exchange rate for immediate delivery of currencies to be exchanged.
C) only used in relation to metals, that is, the spot metal price.
D) can never be used in translating the accounts of foreign operations.
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Page 35
Chapter 34: Accounting for Corporate Social Responsibility
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Q1) The Global Reporting Initiative is:
A) an Australian-based group with ties to the electricity production industry worldwide, which has as its aim the production of environmental reporting guidelines for electricity producers.
B) a special group formed under the umbrella of the World Trade Organization to promote environmental reporting guidelines appropriate for a broad range of entities internationally.
C) a body sponsored by the International Monetary Fund to develop guidelines for reporting that will enhance the ability of developing countries to raise funds through joint venture arrangements and international capital markets.
D) a body initially convened by the US-based organisation Coalition for Environmentally Responsible Economies, which has links to business, accountancy, human rights, environmental, labour and government organisations.
Q2) Entities wishing to provide social and environmental reports are able to use the conceptual framework for guidance in reporting social costs.
A)True
B)False
Q3) Discuss the concept of the 'community licence to operate'.
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