Financial Reporting
Exam Solutions
Course Introduction
Financial Reporting is a fundamental course that explores the principles, standards, and procedures for preparing and presenting financial statements in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). The course covers essential topics such as the conceptual framework of accounting, the preparation of balance sheets, income statements, statements of cash flows, and equity reports. Students learn to analyze and interpret financial information for decision-making, understand the regulatory environment, and address ethical considerations in financial reporting. Emphasis is placed on clarity, accuracy, and transparency in communicating an organizations financial performance and position to various stakeholders.
Recommended Textbook
Financial Accounting An Integrated Approach 5th Australia Edition by Trotman
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Page 2
Chapter 1: Introduction to Financial Accounting
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Q1) Which financial statement assumption relates to the procedure where a $200 paper shredder with a 5-year useful life is treated as an expense?
A) monetary
B) accounting period
C) materiality
D) historical cost.
Answer: C
Q2) Which of the following is NOT an example of a liability?
A) provisions for long service leave
B) share capital
C) accounts payable
D) loan payable.
Answer: B
Q3) What is the cash flow from operations for 2012?
A) $52 000
B) $62 000
C) $70 000
D) $104 000.
Answer: A
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Page 3
Chapter 2: Measuring and Evaluating Financial Position
and Financial Performance
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Q1) Which of the following is NOT true of liabilities?
A) Liabilities are future obligations of economic benefits.
B) Liabilities must be legally owed debts.
C) Liabilities must involve either the future sacrifice of assets,or the future performance of services.
D) Liabilities can be estimates of future payments based on past agreements.
Answer: B
Q2) Which of the following questions CANNOT be answered from a balance sheet?
A) What has caused the changes in cash held during the period?
B) Is the company soundly financed?
C) Can the company pay its bills on time?
D) Should a dividend be declared?
Answer: A
Q3) What was the operating profit before tax of Grasso Ltd for the year?
A) $53 000
B) $16 000
C) $9000
D) $5000.
Answer: C
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Chapter 3: The Double-Entry System
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Q1) What were Livermore's retained profits at 30 June 2012?
A) $3750
B) $7250
C) $8750
D) $5500.
Answer: B
Q2) The business made a loan to the sales manager.
A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.
Answer: A
Q3) If goods are purchased on credit for resale,the accountant:
A) debits inventory and credits debtors
B) debits creditors and credits inventory
C) debits inventory and credits owners' equity
D) debits inventory and credits creditors.
Answer: D
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5
Chapter 4: Record-Keeping
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Q1) Scoot Ltd paid a supplier $240 and received a cash discount of $6.Scoot Ltd's journal entry will include:
A) DR Discount allowed,$6
B) DR Cash,$240
C) DR Accounts payable,$246
D) CR Purchases,$246
Q2) The purpose of ledgers is to:
A) provide a chronological record of transactions
B) keep track of the large number of transactions that occur
C) maintain a cumulative record of profit as it is earned
D) make sure that the sum of the debit balances equals the sum of the credit balances.
Q3) What source document supports the provision of services on credit?
A) supplier's invoice received by the business
B) cheque duplicate
C) cash receipt
D) invoice sent by the business to a customer.
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Chapter 5: Accrual Accounting Adjustments
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Q1) MNO increased its allowance for doubtful debts at year-end.As a result:
A) net profit decreased and cash flow from operations decreased
B) net profit increased and cash flow from operations increased
C) net profit decreased and cash flow from operations was not affected
D) neither net profit nor cash flow from operations was affected.
Q2) Able Ltd operates on a five-day working week.Employees are paid on Thursday for work completed to Wednesday.The weekly wages bill is $40 000.If 30 June 2012 fell on a Tuesday,what was the accrued wages payable on 30 June 2012?
A) $8000
B) $16 000
C) $32 000
D) $24 000.
Q3) If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account,which of the following describes the effect of the debit portion of the entry?
A) It increases the balance of a contra asset account.
B) It increases the balance of an asset account.
C) It decreases the balance of an asset account.
D) It increases the balance of an expense account.
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Page 7
Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Sample Questions
Q1) The agency charged with the administration and enforcement of the Corporations Act 2001 is the:
A) Australian Accounting Standards Board
B) Australian Securities Exchange
C) Australian Securities and Investments Commission
D) Australian Accounting Research Foundation.
Q2) Which of the following is/are essential requirements for an asset to exist for accounting purposes?
(i)The entity must be able to control the future economic benefits associated with the item.
(ii)The entity must be the legal owner of the item.
(iii)The entity must have purchased the item.
A) (i)only
B) (i)and (ii)only
C) (i)and (iii)only
D) (ii)and (iii)only.
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8
Chapter 7: Sustainability Reporting
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Q1) Energy and greenhouse gas disclosure involves the reporting of:
A) greenhouse gas emissions
B) the organisation's commitment to managing the environment
C) energy greenhouse gas emissions and climate change information
D) climate change information.
Q2) The measurement of energy requires:
A) understanding how much fuel has been consumed or produced and how much energy is stored in that fuel
B) understanding how much fuel has been consumed
C) measuring the energy stored in that fuel
D) evaluating the energy content of a particular fuel.
Q3) Which of the following is not an example of an energy and fossil fuel emissions source?
A) gaseous fuels
B) carbon capture and storage
C) liquid fuels
D) solid fuels.
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Chapter 8: Internal Control and Cash
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Q1) What was the bank balance in Tell Ltd's books at 30 November 2012 before the adjustments?
A) $7800 DR
B) $7900 CR
C) $8600 CR
D) $9400 DR.
Q2) In preparing a bank reconciliation statement for a business with a substantial bank balance,the appropriate treatment for monthly bank service charges,$30,appearing on the bank statement is to:
A) add it to the balance as per bank statement
B) deduct it from the balance as per bank statement
C) add it to the balance per company records
D) deduct it from the balance per company records.
Q3) Which of the following is NOT a significant feature of a system of internal control over cash?
A) More than one person opens mail.
B) The person who does bank reconciliations should not be the cashier.
C) The staff member responsible for approving invoices for payment should sign cheques.
D) Bank reconciliation statements are prepared at regular intervals.
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Chapter 9: Inventory
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Q1) What was the value of cost of goods sold of Algo,using the FIFO assumption?
A) $2640
B) $2700
C) $2720
D) $2400.
Q2) Which of the following would produce the lowest net profit in periods of falling prices if inventory levels are not decreasing?
A) FIFO
B) LIFO
C) weighted average
D) moving weighted average cost.
Q3) What was the value of cost of goods sold of Roofoo,using the annual weighted average in a periodic inventory system?
A) $131
B) $140
C) $170
D) $400.73.
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Chapter 10: Noncurrent Assets
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Q1) B Ltd purchased a machine for $96 000 on 1 July 2011.The machine was expected to have a useful life of 4 years.The financial year ends on 30 June.The straight-line method of depreciation is employed.What was the depreciation expense for year ended 30 June 2012?
A) $31 500
B) $27 750
C) $25 500
D) $24 000.
Q2) Assuming Norman Ltd used the straight-line method of depreciation,the accumulated depreciation at 30 June 2011 was:
A) $8000
B) $16 000
C) $22 500
D) $24 000.
Q3) Alby Ltd sold the machine on 1 January 2012 for $14 000.What was the gain or loss on sale?
A) gain $14 000
B) gain $6000
C) loss $6000
D) loss $14 000.
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Chapter 11: Liabilities
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Q1) XYZ Ltd provides a service on credit,charging $2000 + $200 GST.The journal entry would include:
A) DR Accounts receivable $2000
B) CR Sales $2000
C) DR GST Payable $200
D) CR Sales $2200.
Q2) Which of the following is a liability?
A) unearned revenue
B) reserves
C) accrued revenue
D) prepayments.
Q3) If the lease is treated as a capital lease,what would be the total expense reported in 2009 related to the lease?
A) $20 000
B) $16 012
C) $21 776
D) $32 024.
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Chapter 12: Completing the Balance Sheet
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Q1) Investor P has control over another entity,Q.P is referred to as:
A) an associate entity
B) a parent entity
C) a consolidated entity
D) a minority shareholder.
Q2) A debit balance in the retained profits account indicates that the company has:
A) made a loss in the current period
B) made a loss in at least one period
C) never made a profit
D) paid a dividend.
Q3) Which of the following statements about the general reserve account is NOT true?
A) A transfer to this account may be used to indicate to shareholders that it is unlikely to be paid out in dividends.
B) Funds can be transferred back from it to retained profits.
C) The general reserve account provides an indication of where funds are invested.
D) The general reserve account appears under shareholders' equity in the balance sheet.
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Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Sample Questions
Q1) Revenue should not be recognised unless:
A) the goods have been paid for
B) the warranty period has expired
C) the amount can be reasonably measured
D) it is certain that the goods will not be returned.
Q2) Opec Ltd manufactures crystal balls.Transactions for year ended 31 December 2012 were as follows:
(i)18 000 units at a cost of $20 each were produced.
(ii)14 000 units were sold at $30 each.
(iii)Cash was collected on 10 000 of those units sold.
What was the reported profit for the year 2009?
A) $100 000
B) $140 000
C) $180 000
D) $350 000.
Q3) What is the effect of the error on the 2008 net profit?
A) It is $3000 too high.
B) It is $1800 too high.
C) It is $1200 too high.
D) It is $3000 too low.
Page 15
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Chapter 14: The Statement of Cash Flows
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Q1) The wages payable account showed an opening balance of $27 000 and a closing balance of $42 000.Wages expense was $590 000.What was the cash payment for wages?
A) $575 000
B) $590 000
C) $605 000
D) $632 000.
Q2) The amount of inventory purchased during the year was:
A) $490 000
B) $500 000
C) $510 000
D) $520 000.
Q3) What were the proceeds from sale of motor vehicles?
A) $30 000
B) $40 000
C) $50 000
D) $140 000.
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Page 16
Chapter 15: Financial Statement Analysis
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Q1) Good credit control is signalled by:
A) high debtors turnover and high days' sales in debtors
B) low debtors turnover and low days' sales in debtors
C) low debtors turnover and high days' sales in debtors
D) high debtors turnover and low days' sales in debtors.
Q2) Which of the following could NOT explain a substantial increase in the current ratio?
A) slow collection of debtors
B) sale of a major noncurrent asset near year-end
C) a large prepayment near year-end
D) a change from LIFO to FIFO.
Q3) Which of the following statements about earnings per share (EPS)is NOT true?
A) Accounting standards require it to be disclosed in every set of accounts.
B) EPS is calculated as: (net operating profit - dividends on preference shares)/ (weighted average number of ordinary shares outstanding).
C) EPS relates the accounting earnings and market price of the shares.
D) The ratio can be difficult to calculate for consolidated companies.
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Page 17
Chapter 16: Accounting Policy Choices
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Q1) What would be the effect on net profit after tax if the reducing balance method were used rather than the straight-line method?
A) There would be a $375 000 increase.
B) There would be a $375 000 reduction.
C) There would be a $225 000 increase.
D) There would be a $225 000 reduction.
Q2) Which of the following is NOT a reason that preparers of financial reports are obliged to make choices?
A) There is frequently a decision to be made as to whether to adjust the figures for something or to disclose it in the footnotes or other narrative material.
B) Directors have a responsibility to choose the accounting method that shows the highest profit.
C) Accrual accounting necessitates choices about accounting figures,notes and methods.
D) Governments and professional accounting standard setters have been reluctant to specify all solutions and require all enterprises to follow them.
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Chapter 17: Appendix: Special Journals, subsidiary Ledgers and
Control Accounts
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Q1) Which of the following statements about trade discount is NOT true?
A) Trade discount is an incentive for prompt payment.
B) The amount allowed usually depends on the category of the customer or their normal volume of business.
C) Most enterprises record only the net amount of the transaction.
D) The actual price charged is adjusted by the amount of the trade discount.
Q2) What was the balance of the creditors control account at 31 January 2012?
A) $5800
B) $4600
C) $3800
D) $7400.
Q3) What was the balance of the debtors control account at 30 June 2012?
A) $3000
B) $7000
C) $10 000
D) $14 000.
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