Global Financial Accounting Test Bank
Course Introduction
Global Financial Accounting explores the principles, standards, and practices that govern financial reporting and accounting in an international context. The course covers the interpretation and preparation of financial statements under International Financial Reporting Standards (IFRS) and contrasts them with Generally Accepted Accounting Principles (GAAP) in various countries. Students will learn how globalization impacts financial accounting, including foreign currency transactions, translation of financial statements, and the ethical and regulatory issues faced by multinational corporations. The course also examines the role of financial accounting information in international business decision-making and provides case studies to analyze complex accounting scenarios across different jurisdictions.
Recommended Textbook
Financial Accounting and Reporting An International Approach 1st Edition by
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Page 2
Craig Deegan
Chapter 1: An Overview of the International External Reporting Environment
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Q1) Until recently,accounting standards issued by the IASB were:
A)the most well developed set of accounting standards and used widely around the world.
B)deemed to be 'best practice' and always used as a guide when another country was developing its own standards.
C)not that important as they were only designed for western economies.
D)frequently adopted directly by developing countries that did not have their own standard-setting processes.
Answer: D
Q2) In adopting International Financial Reporting Standards (IFRSs),the UK Accounting Standards Board (ASB)has:
A)embraced the IFRSs without change.
B)been disbanded as it is no longer required.
C)used the IFRSs only as a foundation for its own set of standards and has identified where these own standards do not comply with IFRSs.
D)issued its own standards and 're-badged' them as FRSs.
Answer: D
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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 are considered in the IASB Conceptual Framework as primary qualitative characteristics?
A)relevance, faithful representation, materiality and comparability
B)relevance, faithful representation, timeliness and understandability
C)relevance, faithful representation, understandability and comparability
D)materiality, faithful representation, understandability and comparability
Answer: C
Q2) Which of the following accounting policies is an example of a trade-off between relevance and faithful representation?
A)Research outflows are expensed and development activities expenses are capitalised. B)Biological assets are stated at fair value unless the fair value cannot be measured reliably.
C)Machinery and equipment are reviewed periodically to assess propriety of useful life estimations used in depreciation.
D)All of the given answers are correct.
Answer: B
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Chapter 3: Theories of Financial Accounting
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Q1) Theorists' own values or ideological predispositions may be among the factors that determine which side of the argument they will adopt in respect to disputable connections in a theory with evidence.
A)True
B)False Answer: True
Q2) PAT assumes that managers will adopt accounting methods that benefit themselves ahead of the entity.
A)True
B)False Answer: True
Q3) A combination of well-designed management compensation contracts,the market for corporate takeovers and a well-informed labour market should:
A)not be necessary as any one of these methods will control a manager's actions.
B)ensure that managers only act in their own self-interest.
C)mean that, on average, managers work in the best interests of owners.
D)remove any monitoring and bonding costs required under PAT.
Answer: C
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Chapter 4: An Overview of Accounting for Assets
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Q1) Discuss the approaches recommended by IAS 1 to present assets in the statement of financial position.
Q2) The class of assets that is to be valued at lower than cost or net realisable value is:
A)non-current assets.
B)trade receivables.
C)self-generating and regenerating assets.
D)inventories.
Q3) Discuss the recognition rules of assets purchased in one lump-sum payment.
Q4) Under IAS 1 the classification of assets into current and non-current will depend on the entity's:
A)average operating cycle.
B)current accounting period.
C)ordinary course of business.
D)normal operating cycle.
Q5) The opportunistic view under PAT predicts managers to prefer capitalisation over expensing.Discuss.
Q6) IAS 1 Presentation of Financial Statements requires us to consider an entity's normal operating cycle.Explain what a normal operating cycle is.
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Chapter 5: Depreciation of Property, Plant and Equipment
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Q1) Which depreciation policy is likely to reduce debt-to-equity ratio?
A)sum-of-digits
B)straight-line rate
C)declining-balance
D)sum-of-digits or declining-balance
Q2) Red Enterprises purchased a vehicle for 35 000.A further 5000 was spent to prepare it for use.The useful life of the vehicle is expected to be 15 years,but Red Enterprises expects to replace it with a better model in 7 years' time.The salvage value is estimated to be 6500 after 15 years and 15 000 at the end of 7 years.What is the depreciation for the first 2 years using the declining-balance method of depreciation (rounded to the nearest euro)?
A)Year 1: 5230, Year 2: 4546
B)Year 1: 4564, Year 2: 4043
C)Year 1: 3990, Year 2: 3535
D)Year 1: 3269, Year 2: 2841
Q3) Discuss how the useful life of a depreciable asset is determined.
Q4) If a company finds out years later that the expected pattern of consumption of future economic benefits of an asset had changed,how must a company deal with this accounting issue?
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Chapter 6: Revaluations and Impairment Testing of
Non-Current Assets
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Q1) According to Positive Accounting Theory,the size of the entity may have an impact on management's decision to revalue because of management's motivation to reduce political costs.There is more than one possible view regarding the effect of revaluation on political visibility,including which of the following?
A)Since revaluations may increase the variability of asset size, they will increase political costs.
B)Where increases in asset size are expected to result from revaluations, the increase in the size of the entity may reduce political costs.
C)Where revaluations increase the size of the asset base, the return on assets will be lower and this will potentially lower political costs.
D)Where revaluations result in an increase in the asset base, depreciation expense will increase and lead to greater political costs.
Q2) Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset.
A)True
B)False
Q3) Differentiate depreciation expense from impairment loss.
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Chapter 7: Inventory
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Q1) According to IAS 2,one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?
A)specific identification, LIFO or FIFO
B)absorption costing, weighted average costing or LIFO
C)FIFO, specific identification or weighted average cost
D)weighted average costing, ABC costing or FIFO
Q2) IAS 2 requires,among others,disclosure of which of the following pieces of information?
A)accounting policy adopted for measuring inventories
B)carrying amount of inventories for each classification of inventory appropriate to the entity
C)amount of any write-down during the period
D)all of the given answers
Q3) Under the perpetual system,a difference with the stocktake records might indicate:
A)damaged inventory.
B)theft of inventory.
C)obsolete inventory.
D)all of the given answers.
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Chapter 8: Accounting for Intangibles
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Q1) IAS 38 states that intangible assets:
A)may not be revalued and must be amortised over their useful lives.
B)are only able to be revalued if they have been internally generated and there is an active market for them.
C)may only be revalued to their fair value as assessed by a licensed valuer.
D)may be measured by using either the cost model or the revaluation model.
Q2) Explain how IAS 38 Intangible Assets may advantage European companies with heavy research and development activities.Contrast this with US companies.
Q3) International convergence has meant that there is no longer one specific standard related to intangibles
A)True
B)False
Q4) The gain or loss on the disposal of an intangible asset is determined as the difference between:
A)net proceeds from the disposal and the amortised amount.
B)net proceeds from the disposal and the recoverable amount.
C)net proceeds from the disposal and the carrying amount.
D)net proceeds from the disposal and the initial cost.
Q5) Explain the difference between an 'infinite life' and an 'indefinite life'.
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Chapter 9: An Overview of Accounting for Liabilities
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Q1) Tissues and Co has elected to issue preference shares to the value of 220 000.Prior to the share issue the company has assets of 780 000,liabilities of 370 000 and equity recorded at 410 000.The terms of the share issue state that these shares are non-redeemable but a guaranteed cumulative dividend of 8% of share value is payable.Calculate the debt-to-asset ratio immediately before and after the share issue.
A)before-47.4%; after - 47.4%
B)before-47.4%; after - 37%
C)before-52.6%; after - 63%
D)before-47.4%; after - 59%
Q2) A discount on debentures issued arises when the market required rate of return is less than the coupon rate.
A)True
B)False
Q3) In a constructive obligation where the entity retains discretion to avoid any future sacrifice of economic benefits,no liability should be recognised in the financial statements.
A)True
B)False
Q4) Discuss the substance-over-firm approach in IAS 32 Financial Instruments.
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Chapter 10: Accounting for Leases
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Q1) A lease involving land and buildings:
A)must be recorded as an operating lease as land has an indefinite life.
B)requires two separate leases to be recorded, one for the land and another for the building.
C)will still require a determination to be made as to whether the lease constitutes a finance or operating lease.
D)requires the minimum lease repayments to be split evenly between the land and buildings.
Q2) From the point of view of the lessor,any lease rentals that are a recovery of executory costs should be treated as:
A)a reduction in the lease receivable in the period in which they are received.
B)a reduction in interest revenue in the period that the costs are incurred.
C)an increase in unearned revenue in the period in which the lease rental is received.
D)revenue in the periods in which the related costs are incurred.
Q3) A finance lease is one in which substantially all the risks and benefits of ownership pass to the lessee.
A)True
B)False
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Chapter 11: Share Capital, Reserves and Share Options
Employee Bonus Schemes
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Q1) Explain the differences between a rights issue and share options.
Q2) Preference shares may be classified as a liability,an equity item,or have features of both.Explain with examples,how to determine such a classification.
Q3) When a company redeems preference shares:
A)It must ensure it has sufficient cash reserves to do so.
B)It must do so out of profits other than those available for the issuing of dividends.
C)It must issue fresh shares to fund the redemption.
D)None of the given answers are correct.
Q4) In the case of a share issue being oversubscribed,excess application monies:
A)will always be refunded to applicants.
B)may be used to reduce future amounts owing on allotment if the shares are issued on a pro rata basis.
C)must be recorded as revenue in the current financial period.
D)must be placed in a trust account until a refund is requested by applicants.
Q5) A share split is usually funded through retained earnings.
A)True
B)False
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Chapter 12: Accounting for Financial Instruments
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Q1) The risks arising from financial instruments are typically:
A)credit risk, fair value risk and market risk.
B)credit risk, liquidity risk and financial risk.
C)inherent risk, liquidity risk and market risk.
D)credit risk, liquidity risk and market risk.
Q2) The most commonly issued equity instrument would be a redeemable preference share.
A)True
B)False
Q3) Derivatives are sometimes called 'secondary' financial instruments.
A)True
B)False
Q4) Documentation that constitutes a financial instrument as a hedging instrument must include:
A)how the entity will assess the effectiveness of the hedging instrument.
B)the nature of the risk being hedged.
C)the risk management objective and strategy.
D)all of the given answers.
Q5) Discuss the economic effect of issuing a compound instrument.
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Chapter 13: Revenue Recognition Issues
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Q1) IASB (2011)Revenue from Contracts with Customers requires revenues to be measured in terms of historical cost to improve reliability.
A)True
B)False
Q2) The percentage of completion can be measured in a number of ways,including:
A)physical estimates or surveys of the work performed to date.
B)the work plan basis, which uses the project management plan to calculate the percentage of the construction completed.
C)the billings basis, using the proportion that progress billings to date bear to the total estimated billings for the contract.
D)physical estimates or surveys of the work performed to date and the billings basis, using the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.
Q3) Interest revenue is derived from borrowing resources from another entity.
A)True
B)False
Q4) In accordance with IASB (2011)Revenue from Contracts with Customers discuss the five steps to recognising revenue.
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Chapter 14: The Statement of Comprehensive Income and Statement
of Changes in Equity
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Q1) Profit is a measure of financial performance and therefore may not truly reflect the success or otherwise of an organisation.
A)True
B)False
Q2) IAS 1 permits entities to present the components of other comprehensive income either before tax effects (gross presentation)or after their related tax effects (net presentation).
A)True
B)False
Q3) The statement of profit or loss (income statement)under IAS 1 is designed to report all revenues and expenses to determine profit or loss.
A)True
B)False
Q4) All disclosure requirements that relate to an entity's profit or loss are included in IAS 1. FALSE
Q5) Comprehensive income includes dividend payments to shareholders.
A)True
B)False
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Chapter 15: Accounting for Income Taxes
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Q1) When the carrying amount of an asset exceeds its tax base,the amount that will be allowed as a deduction for tax purposes will exceed the amount of assessable economic benefits.
A)True
B)False
Q2) The tax figure calculated and recorded on the statement of comprehensive income is an accurate reflection of the entity's tax liability for the stated period.
A)True
B)False
Q3) The carrying amount of a deferred tax asset is reviewed:
A)annually
B)at each reporting date
C)when assets are revalued
D)None of the given answers are correct.
Q4) The balance sheet approach compares the carrying value with the tax base of the assets and liabilities.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) Discuss the terms 'cash' and 'cash equivalents' as they apply to a statement of cash flows.
Q2) IAS 7 requires disclosures about non-cash financing and investing activities.
A)True
B)False
Q3) Which of the following would not be an operating activity cash outflow?
A)taxes paid
B)acquisition of goods and services
C)acquisition of intangible assets
D)employee benefits paid
Q4) Items that must be separately disclosed in the statement of cash flows include:
A)cash sourced from derivative instruments.
B)borrowing costs.
C)income taxes paid.
D)borrowing costs and income taxes paid.
Q5) In accordance with IAS 7 Statement of Cash Flows,cash receipts from sales of property,plant and equipment are classified as cash flows from operating activities.
A)True
B)False
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Chapter 17: Events Occurring After the Reporting Date
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Q1) Disclosures required by IAS 10 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) Dividends declared after reporting date but before the authorisation for issue of the financial report do not meet the criteria of the present obligation because the identity of the shareholders is unknown until the date of payment.
A)True
B)False
Q3) What is an 'adjusting event' in accordance with IAS 10?
Provide examples.
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Chapter 18: Related-Party Disclosures
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Q1) IAS 24 defines directors as including:
A)any employee of the entity whether or not they are validly appointed to occupy the position.
B)any person that directs an entity in its financial and operating activities regardless of whether they are known by the title of director.
C)any person in accordance with whose instructions the directors of an entity are accustomed to act.
D)any person that directs an entity in its financial and operating activities regardless of whether they are known by the title of director and any person in accordance with whose instructions the directors of an entity are accustomed to act.
Q2) The disclosures required by IAS 24 for key management personnel include:
A)the name of the person.
B)the position held.
C)dates identifying the period of responsibility.
D)all of the given answers.
Q3) Discuss the current debate regarding the setting and disclosure of executive compensation.
Q4) Discuss the objective of IAS 24 Related Party Disclosures.
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Chapter 19: Earnings Per Share
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Q1) Why is the EPS number that important in financial reporting that there is one accounting standard devoted to this calculation process?
Q2) Phlox Plc has a profit after tax of £6 590 000 for the period ended 30 June 2015.Phlox Plc also has £1 000 000 of 6% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. As at 1 July 2014 there were 3 000 000 fully paid ordinary shares issued.Phlox Plc also has £1 500 000 in convertible debentures issued for the full year.It pays interest of 5% per annum and could be converted to 300 000 ordinary shares at the option of the debenture-holders.There are also 100 000 share options currently on issue with an exercise price of £1.30.The average market price for ordinary shares during the year was £2.70.The tax rate is 33%.What are the diluted earnings per share for Phlox Plc in accordance with IAS 33?
A)£1.92
B)£1.95
C)£1.97
D)£2.20
Q3) The conversion of potential ordinary shares has no flow-on effects.
A)True
B)False
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Chapter 21: Further Consolidation Issues I: Accounting for Intragroup Transactions
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Q1) Explain the accounting treatment for impairment to the subsidiary investment when dividends have been paid out of pre-acquisition profits.
Q2) Explain why gains recognised on sale of assets between entities within a group are reversed on consolidation.
Q3) IFRS 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation.This requirement is consistent with the parent entity concept of consolidation.
A)True
B)False
Q4) Aladdin Plc sells inventory for a profit to its subsidiary Jasmine Plc to be used as machinery in Jasmine Plc's production process.The consolidation worksheet of Aladdin Plc with respect to this transaction only should ? not include:
A)a debit to sales.
B)a credit to cost of sales.
C)a credit to inventories.
D)a credit to machinery.
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Chapter 22: Further Consolidation Issues II: Accounting for
Non-Controlling Interests
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Q1) IAS 1 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) As prescribed in IFRS 10,which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?
A)Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.
B)Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests.
C)Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
D)All of the given statement are correct.
Q3) Describe the two options in measuring the non-controlling interest.
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Chapter 23: Further Consolidation Issues III: Accounting for
Indirect Ownership Interest
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Q1) It is not possible for one entity to control another entity without any direct ownership interest.
A)True
B)False
Q2) Illustrate with the use of a diagram with hypothetical ownership interests,a structure where a parent entity has indirect ownership in a subsidiary.Demonstrate using the hypothetical percentages in proposed diagram,how direct and indirect ownership of parent and non-controlling interests are calculated.
Q3) A Plc owns 75% of the issued capital of B Plc and B Plc owns 65% of the issued capital of C Plc.What is the total outside equity interest in C Plc?
A)48.75%
B)35%
C)25.75%
D)51.25%
Q4) Describe a non-sequential acquisition and explain the process of consolidation for this type of business combination.
Q5) Discuss why it is necessary to differentiate between direct and indirect non-controlling interests in a group.
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Chapter 24: Accounting for Foreign Currency Transactions
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Q1) In terms of retrospectively assessing hedge effectiveness,which of the following situations does not meet the criteria for effectiveness?
A)Fair value of shares increased by 12 750; fair value of hedging instrument increased by 11 200
B)Fair value of shares increased by 12 800; fair value of hedging instrument decreased by 10 255
C)Fair value of shares decreased by 12 316; fair value of hedging instrument increased by 15 325
D)Fair value of shares decreased by 11 999; fair value of hedging instrument increased by 13 225
Q2) A hedge is defined by IAS 39 as an action taken,whether by entering into a foreign currency contract or otherwise,with the objective of maximising the possible positive effects of movements in exchange rates.
A)True
B)False
Q3) Hedges cannot be designated and/or documented on a retrospective basis.
A)True
B)False
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Chapter 25: Translating the Financial Statements of Foreign Operations
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Q1) The foreign exchange exposure of the parent entity in relation to its foreign operation relates to the net cash flows of the investment in the operation.
A)True
B)False
Q2) When translating non-monetary liabilities into the functional currency,the translation rate used is:
A)the rate at date of valuation.
B)the closing rate.
C)the spot rate.
D)the average rate.
Q3) As prescribed in IAS 21,in translating the accounts of a foreign operation from local currency to functional currency,the exchange rate to use for land is the exchange rate at the date of the transaction.
A)True
B)False
Q4) Outline the approach to be taken when translating the accounts of a foreign subsidiary; that is,the various rates to be used for the various components of the financial statements.
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Chapter 26: Accounting for Corporate Social Responsibility
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Q1) Which of the following statements is a valid criticism of the accounting profession with respect to its consideration of social and environmental reporting?
A)Practice of discounting liabilities, particularly those liabilities that will not be settled for many years, allows the recognition of future expenditures on environmental clean-up in the current period.
B)Gray, Owen and Adams (1996) argue that discounting makes good economic sense but discourages entities in undertaking environmentally friendly activities.
C)The profession has a narrow focus of users of social and environmental reports limiting this to investors, governments and institutional investors.
D)IAS 37 Provisions, Contingent Liabilities and Contingent Assets limits the obligations relating to environmental performance to legal obligations.
Q2) Disclosure of environmental information is consistent with the Positive Accounting Theory paradigm in that it seeks to reduce adverse wealth transfers.
A)True
B)False
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