Intermediate Accounting Review
Questions
Course Introduction
Intermediate Accounting is a comprehensive course designed to deepen students' understanding of financial accounting principles and practices. Building upon foundational accounting concepts, the course explores topics such as revenue recognition, assets, liabilities, equity, and the preparation and analysis of financial statements in accordance with generally accepted accounting principles (GAAP). Students will engage with complex accounting issues, including accounting for investments, inventories, long-term assets, income taxes, and pensions. Emphasis is placed on problem-solving, critical thinking, and the application of accounting standards to real-world scenarios, preparing students for advanced study in accounting and professional practice.
Recommended Textbook
Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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Page 2
Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Q1) Compliance with accounting standards by reporting entities in the public sector is required by:
A) ASIC
B) specific acts applying to the public sector
C) FRC
D) the Corporations Act
Answer: B
Q2) To practice in Australia,an accountant:
A) must be registered by the AASB
B) must be registered by the government
C) must be a member of CPA Australia or ICAA
D) none of the above
Answer: D
Q3) Interpretation Advisory Panels make recommendations on particular issues to:
A) AASB
B) UIG
C) ASIC
D) ASX
Answer: A
Page 3
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Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) SAC2 defines the objective of general purpose financial reporting as:
A) to provide information to users that is useful for making and evaluating decisions about the allocation of scarce resources
B) to decide whether the reporting entity is achieving its objectives
C) to give a true and fair view of the financial position and performance of the entity
D) all of the above
Answer: A
Q2) Under the FASB Statement of Financial Accounting Concepts No.1 the scope of general purpose financial reporting includes all of the following except:
A) management forecasts included in the financial reports
B) cash budgets prepared by management
C) voluntary information in the notes to the financial statements
D) None of the above is excluded from the scope of general purpose financial reports
Answer: B
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4
Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) SAC3 arranges the qualitative characteristics in three levels:
A) fundamentals, presentation, display
B) fundamentals, enforcement, display
C) fundamentals, enhancing, constraints
D) assets, liabilities, owners' equity
Answer: C
Q2) Under the framework financial information that assists in either confirmation of past predictions or in making new predictions is:
A) relevant
B) timely
C) comparable
D) none of the above
Answer: A
Q3) Under the Framework,which of these is not an essential characteristic of an expense?
A) It must result in a decrease in equity
B) It must represent a flow
C) It must be associated with the earning of revenue
D) It must take the form of a decrease in an asset or an increase in a liability
Answer: C
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) AASB 137 'Provisions,Contingent Liabilities and Contingent Assets' requires information about contingent liabilities to be disclosed in a note to the financial statements where the probability of a future sacrifice of economic benefit is:
A) higher than remote
B) above 20%
C) between 25% and 50%
D) above 50%
Q2) The Framework specifies that liabilities should be measured at:
A) historical cost
B) current replacement cost
C) current cash equivalent
D) The Framework does not specify how liabilities should be measured
Q3) There is wide agreement that the soundest measure,conceptually,of value-in-use is:
A) historical cost less accumulated depreciation
B) the estimated net market value if the asset was sold in the ordinary course of business
C) deprival value
D) the discounted value of the asset's future cash flows
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Chapter 5: The Choice of Accounting Methods
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Q1) During the ad hoc period of accounting standard setting in Australia in the 1970s and '80s,which of the following is not correct?
A) Arguments by business in relation to standards tended to be based on self-interest rather than sound theoretical considerations
B) The business community preferred standards which reduced choice
C) The business community preferred standards which maintained the status quo
D) Standard setters tended to produce standards that they knew were acceptability to the business community
Q2) Research suggests that post-Enron,Chief Financial Officers:
A) are reluctant to use accounting policy choices to manipulate earnings
B) prefer not to smooth earnings
C) are more likely to use accounting policy choices to smooth earnings
D) use volatile earnings to signal low risk prospects
Q3) Describe and discuss how agency theory seeks to explain the choice of accounting methods by financial report preparers.
Q4) Explain the income smoothing hypothesis.In your answer discuss the reluctance of Chief Financial Officers to use accounting policy choice to achieve income smoothing post-Enron.
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Page 7
Chapter 6: The Balance Sheet: an Overview
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Q1) Which statement is incorrect?
A) Under AASB 101, assets and liabilities must not be set-off unless set-off is permitted or required by another accounting standard
B) Between 1979 and 1999, there was no Australian accounting standard dealing specifically with the statement of financial position
C) Under AASB 101, there is no materiality override
D) None of the statements is incorrect
Q2) Identify and discuss the requirements concerning the classification of assets contained in AASB 101.
Q3) AASB 101 allows which of these statements of financial position formats?
A) Current/non-current format
B) Order-of-liquidity format
C) A mixed basis of presentation using both the current/non-current basis and the order-of-liquidity format for different asset groups
D) All of the above are allowable formats.
Q4) Entities are required to disclose comparative information the previous period.Discuss how the correction of prior period errors may impact on the presentation of the financial statements.
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Page 8
Chapter 7: Accounting for Current Assets
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Q1) A disadvantage of the LIFO method of inventory valuation is:
A) it gives a poor matching of current costs with current revenues
B) its use accentuates the business cycle
C) closing inventory on the balance sheet may be undervalued
D) all of the above are disadvantages
Q2) Discuss the disclosures relating to inventory required by AASB 102.Include a discussion on the disclosures required by not-for-profit entities.
Q3) The inventory valuation rule is to value inventory at the lower of cost and net realisable value on an item-by-item basis. Explain the meaning of: i.cost
ii.net realisable value
iii.the overall operation of the rule.
Q4) Under the inventory standard AASB 102,a new assessment of the net realisable value of inventory items is made:
A) in a general meeting
B) each period
C) weekly D) every two years
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) An asset should be depreciated over its:
A) technical life
B) economic life
C) legal life
D) physical life
Q2) Which statement is correct?
A) A change between the cost model and the revaluation model may be made only if the change is material
B) A change between the cost model and the revaluation model may be made only if the change results in financial information that is more relevant and reliable as per AASB 108
C) For existing assets a new selection can be made each year between the cost model and the revaluation model
D) A change between the cost model and the revaluation model is never permitted
Q3) Which factors should be taken into account when selecting a depreciation method?
A) The profit or loss for the year
B) Whether the asset has been re-valued
C) The amount that can be claimed as a tax deduction
D) None of the above
Q4) Explain and discuss how donated assets should be recorded in the accounts.
Page 10
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Chapter 9: Accounting for Company Income Tax
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Q1) When calculating income tax expense under the statement of financial position approach to income allocation,which of the following formulae is used?
A) Income tax payable minus deferred income tax expense
B) Current income tax expense plus deferred income tax expense
C) Deferred income tax expense minus income tax payable
D) Temporary differences plus permanent differences
Q2) Permanent differences (between revenues and expenses for accounting and tax purposes):
A) can cause Deferred Tax Liabilities but not Deferred Tax Liabilities to arise
B) can cause both Deferred Tax Assets and Deferred Tax Liabilities to arise
C) can cause Deferred Tax Assets but not Deferred Tax Liabilities to arise
D) can cause neither Deferred Tax Assets nor Deferred Tax Liabilities to arise
Q3) Discuss the results of empirical research that examines whether tax-effect accounting should continue to be required.
Q4) Deferred tax assets and deferred tax liabilities:
A) may be offset for presentation in the financial statements
B) cannot both arise in the one business
C) usually offset one another in amount
D) must always be disclosed separately in the financial statements
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Chapter 10: Accounting for Investments
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Q1) When deciding on the broad accounting treatment for investments in the shares of other companies that are held as non-current assets,the holdings are normally classified into which of the following broad groups?
A) Stock exchange listed holdings, family company holdings
B) Liquid holdings, non-liquid holdings
C) Small holdings, holdings that give significant influence, holdings that give control
D) Small holdings, large holdings
Q2) On 1 July 20X0 Myall Ltd acquired 25% of the voting shares of Kenny Company for $400 000 in cash.On 30 June 20X1 Kenny Company paid a total dividend to its shareholders of $40 000.The journal entry made in Myall Ltd's accounts to record the receipt of the dividend is:
A) debit cash at bank $10 000; credit investment in K Company $10 000
B) debit cash at bank $10 000; credit dividend income $10 000
C) debit cash at bank $40 000; credit dividend income $40 000
D) debit cash at bank $40 000; credit Investment in K Company $40 000
Q3) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
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Page 12
Chapter 11: Accounting for Intangible Assets
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Q1) Under AASB 138,the cost of identifiable intangible assets that are purchased separately is:
A) the purchase price plus all cost directly attributable to preparing the asset for its intended use
B) fair value at the date of acquisition
C) the sum of expenditure incurred from the date the intangible assets first meet the recognition criteria
D) none of the above
Q2) Distinguish between identifiable and unidentifiable intangible assets and explain how this distinction has affected the broad accounting treatment in Australia for each.
Q3) When the sum of the fair values of the identifiable net assets acquired exceeds the cost of acquisition,the difference is known as:
A) negative goodwill
B) excess on acquisition
C) goodwill
D) both A and B
Q4) Explain and discuss the application of AASB 138 in its proposals to account for research and development expenditure.
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Chapter 12: Accounting for Leases
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Q1) Which of the following entries,shown in a company's accounting records,indicates that the company has entered into a finance lease?
A) Dr Interest expense
Dr Lease Liability
Cr Cash at Bank
B) Dr Cash at Bank
Cr Lease Liability
C) Dr Rent Expense
Dr Interest Expense
Cr Cash at Bank
D) Dr Cash at Bank
Cr Lease Revenue
Cr Interest Revenue
Q2) A typical lease agreement will always set out all of the following except:
A) who is responsible for the payment of maintenance and repair costs, insurance and taxes
B) that the lease is non-cancellable by either party
C) the amount and timing of the lease (rental) payments
D) the period of the lease
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Page 14
Chapter 13: Accounting for Employee Benefits
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Q1) A liability or an expense for termination benefits can only arise when the entity is demonstrably committed to provide the benefits.Which of the following is listed in AASB 119 as part of the requirements of a detailed formal plan for termination that determines the meaning of 'demonstrably committed'?
A) Identification of when the termination will occur
B) Identification of termination benefits for each job classification or function
C) Identification of the location, function and approximate number of employees whose services will be terminated
D) All of the above
Q2) Under AASB 119,the recognition criteria for liabilities for profit sharing and bonus plans is:
A) It is probable the liability will be settled and the amount of the liability can be measured consistently
B) It is reasonably certain the liability will be settled
C) It is probable the liability will be settled
D) The entity has a present legal or constructive obligation to settle the liability, and the amount of the liability is capable of being measured reliably
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Chapter 14: Accounting for Financial Instruments
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Q1) A futures contract provides for:
A) a purchase or sale now at a price to be determined based on future events
B) a purchase or sale in the future at a price to be determined when the transaction is completed
C) a purchase or sale in the future at a fixed price agreed at the date of the agreement
D) any of the above
Q2) A buyer of a futures contract:
A) may let the contract expire with no action required
B) has an obligation to buy the underlying asset
C) has a right, but not an obligation, to buy the underlying asset
D) must pay the futures price when the contract is made
Q3) A futures contract can be arranged:
A) only on financial measures such as stock market price indices
B) only through an established stock exchange
C) only on commodities such as agricultural products
D) on virtually any commodity or financial measure
Q4) Discuss the disclosure requirements in AASB 7 Financial Instruments Disclosure and AASB 132 Financial Instruments Presentation.
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Page 16
Chapter 15: Equity
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Q1) The three broad components of equity for a company are:
A) public equity, contributed equity, government equity
B) ordinary shares, preference shares, options
C) share capital, retained earnings, reserves
D) ordinary shares, preference shares, reserves
Q2) Asset revaluation reserves arise from:
A) application of the Corporations Act and the accounting standards
B) transfers from retained earnings
C) transfers from cash at bank
D) none of the above
Q3) When a company buys back some of its shares and the amount used to pay dividends remains the same after the buyback,the return on each ordinary share will:
A) increase
B) decrease
C) remain the same
D) it depends
Q4) Discuss the arguments against recognising share options as an expense in the period in which the employee provides services.
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Page 17
Chapter 16: The Income Statement
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Q1) Which statement in relation to the treatment of expenses under AASB 101 is correct?
A) It is optional for an entity with revenue from the sale of goods to disclose cost of sales
B) Expenses should be classified according to their nature or their function
C) Expenses are defined exactly in accordance with the Framework
D) A and B are correct
Q2) In the United States,SFAS 130 requires which profit figure to be disclosed?
A) Profit after tax after applying all other accounting standards
B) The comprehensive income figure which includes all income and expenses that have previously bypassed the profit calculation after tax and been taken directly to equity
C) Neither A nor B
D) Both A and B
Q3) Which of the following categories of revenue are not required to be disclosed separately under AASB 118?
A) Extraordinary items
B) Interest
C) Dividends
D) None; all of the above are required disclosure
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Chapter 17: The Cash Flow Statement
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Q1) Studies such as Bowen,Burgstahler and Daley (1986)and Cleng and Hollie (2008)in the USA and Percy and Stokes (1992),Cotter (1996)and Clinch Sidhu and Sin (2002)in Australia have found:
A) cash flow data appeared to be similar to profit data
B) cash flow data was significantly different from profit data
C) there was no relation between profit and cash flow data
D) none of the above
Q2) Activities described as relating to the acquisition and/or disposal of non-current assets under AASB 107 are classified as:
A) investing activities
B) financing activities
C) operating activities
D) none of the above
Q3) All of these are classified as operating items under AASB 107 'Cash Flow Statements',except:
A) cash received from sales
B) cash received from the sale of surplus machinery
C) cash dividends received
D) cash payment of expenses
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Page 19
Chapter 18: Financial Reporting: Segment Reporting, value
Added Statements, highlights Statements and
Financial Information
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Q1) When evaluating whether to calculate diluted earnings per share (EPS),a company issuing convertible notes should consider:
A) the time weighting factor
B) if the notes potentially convert to ordinary shares
C) if conversion of the notes is likely to increase earnings, or decrease losses, per share
D) both B and C must be considered
Q2) The presentation of future-oriented financial information in company annual reports:
A) is most helpful in monitoring management's stewardship function
B) should be set out so as to enable a comparison with actual results at the end of the year
C) is now required in most English-speaking countries
D) all of the above
Q3) What benefits is an investor likely to gain if a business presents financial information for its various separate major organisational divisions and/or geographical areas of operations? Are there any likely costs (direct or indirect)to the investor from the presentation of this information?
Q4) Discuss the benefits of the 'management approach' adopted by AASB 8.
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Chapter 19: Further Financial Reporting Issues
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Q1) Discuss the concept of the reporting entity and the rationale for the revisions to the International Financial Reporting Standards for small and medium sized entities.
Q2) The treatment of items that clearly belong to past reporting period is a long standing problem.One way to handle this problem is to make adjustments to the retained earnings.The problem with this approach is that:
A) it could lead to manipulation of profit for the period
B) revenue and expenses are matched inappropriately
C) revenue and expenses are matched appropriately
D) none of the above
Q3) Which of the following events occurring after the reporting date may need to be disclosed in the financial statements of a business for that previous period?
A) The bankruptcy of a major debtor
B) A loss caused by fire or flood
C) The announcement of a business merger
D) All of the above may need to be disclosed
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Chapter 20: Accounting for the Extractive Industries
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Q1) Describe the activities involved in the pre-production phase in the production of minerals,oil and gas and the accounting treatments that might be allowed for costs arising from this phase.
Q2) Inventory held by businesses operating in the extractive industries should be valued at:
A) lower of cost and net realisable value, including amortisation of pre-production cost
B) net realisable value less an allowance for future rehabilitation costs
C) net realisable value
D) lower of cost and net realisable value, excluding amortisation of pre-production costs
Q3) The expense (or costs written-off method)of accounting for exploration and evaluation costs in the extractive industries would seem to be the most conservative of the suggested methods of accounting for these costs.Conservatism has a long history in accounting and is often used to justify or support many accounting practices.Why then is the expense method not favoured by the Australian Accounting Standards Board? Consider both the benefits and the disadvantages arising from the use of this method.
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22
Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) The percentage-of-completion method for recognising profit on a construction contract will usually:
A) show a higher profit in all years than will the completed-contract method
B) show a higher profit in some year(s) and a lower profit in some year(s) than will the completed-contract method
C) show a lower profit in all years than will the completed-contract method
D) show a lower profit in most years than will the completed-contract method
Q2) Where possible when allocating the costs carried forward to individual components of a property development the following method should be used:
A) specific identification method
B) area method
C) value method
D) none of the above
Q3) A property developer constructing a project for a client at a specified price can recognise revenues and profits:
A) on an instalment basis
B) when the final instalment is paid
C) at the point of sale
D) on a percentage-of-completion basis
Page 23
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Chapter 22: Accounting for Agricultural Activity
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Q1) Which of the following activities do not fall under the auspices of AASB 141?
A) Circus animals
B) Greyhounds and horses held for racing
C) Investment in a carbon sink
D) All of the above
Q2) Greenview Dreams Ltd has an orchard of mango trees with an estimated fair value at 1 January 20X1 of $1 600 000.During the year ended 31 December 20X1 mangoes with a fair value of $300 000 were picked and they were still on hand at the end of the year.Costs of picking,sorting,packing and storage totaled $125 000.The mangoes were sold later in 2012 for $430 000.On 31 December 20X1 the mango orchard had an estimated net realisable value of $1 750 000.The total profit from operations for the 20X1 year is:
A) $325 000
B) $305 000
C) $575 000
D) $425 000
Q3) In what ways is agricultural activity different from other forms of assets? In what ways are they similar to other forms of assets? How do these differences,and similarities,affect accounting for agricultural activity?
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Page 24
Chapter 23: Accounting for Superannuation Plans
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Q1) A change in the net market value of a superannuation plan's assets over a period is included in the income of:
A) all superannuation plans
B) defined contribution superannuation plans
C) self-managed superannuation plans
D) defined benefit superannuation plans
Q2) The general purpose financial reports of a superannuation plan should provide information to assist in answering the following question:
A) Who are the trustees?
B) Is the plan solvent?
C) What are the names of the professional advisers?
D) None of the above
Q3) The general purpose financial statements of a superannuation plan should answer the following question(s):
A) Is the plan solvent?
B) Will the plan remain solvent?
C) Are the trustees diligently performing their duties?
D) All of the above
Q4) Discuss the differences between the requirements of ED179 and AAS 25.
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Chapter 24: Accounting for Financial Institutions
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Q1) A general insurer invests the cash received from premiums because of the time between the collection of premiums and the payment of claims.Their primary objective in managing this investment portfolio is:
A) liquidity - the insurer needs readily available cash to pay claims
B) solvency - the insurer is legally obliged to maintain minimum solvency levels
C) profitability - the insurer must maximise its profit to be a commercial success
D) all of the above
Q2) Where a bank has approved a loan but the borrower has not yet drawn it down,the usual practice in the financial statements of the bank is to:
A) include the undrawn amount as a liability in the Balance Sheet
B) include the undrawn amount as a contingent liability in the financial statements
C) make no specific disclosure of the details of this type of item
D) disclose the amount expected to be drawn down in the following twelve months
Q3) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
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Chapter 25: Financial Reporting in the Public Sector
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Q1) All of these are essential features of most of the definitions of infrastructure assets,except:
A) they are usually very profitable
B) they are necessary to sustain living standards
C) they are generally immovable
D) none of the above, i.e., all are essential features of infrastructure assets
Q2) Compare government financial statistics with the general purpose GAAP reporting models.
Q3) The Australian federal government should report regularly about the results of its operations and its financial position because:
A) electors can then assess the quality of management of the resources controlled by government
B) it is required under the Corporations Law
C) the Senate (the upper house of the federal parliament) demands it
D) it is required under the Australian Constitution
Q4) Rowles (1992)concludes that there is no difference between investments such as in roads and drains made by public sector entities and assets such as blast furnaces made by the private sector.Discuss this view in the light of accounting for infrastructure and heritage assets.
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) The 'global harmonisation' approach to accounting standards,as set out in AASB Policy Statement No 1,means:
A) working to reduce the differences between Australian and other countries accounting standards
B) adopting accounting standards developed and adopted in other countries
C) developing local accounting standards based on an examination of accounting standards and practices adopted in other countries
D) the adoption of a single set of accounting standards throughout the world
Q2) Which of these statements is not correct concerning the adoption by Australia of international accounting standards?
A) Where words need to be changed in AASB adaptations of international standards to accommodate Australian legislation, these are identified by the use of 'Aus' paragraphs
B) Australian standards, where there is no international equivalent, have been withdrawn
C) The AASB is committed to ensuring that AASB equivalents will be issued for all international accounting standards
D) None of the above, i.e., all are correct statements
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Chapter 27: Foreign Currency Translation
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Q1) AASB 121 requires the translation of financial statements in which of the following circumstances?
i.if the domestic currency of the foreign operation is not the same as the functional Currency of its parent
ii.if the functional currency of the foreign operation is not the same as the functional Currency of its parent
iii.if the functional currency of the economic entity is not its presentation currency
iv.if the presentation currency of the economic entity is not its functional currency
A) i and ii
B) ii and iii
C) iii and iv
D) i and iii
Q2) AASB 121 requires an entity to measure its financial performance and financial position in its functional currency.What are the indicators of a functional currency? Is the functional currency the same as the presentation currency? Explain your answers.
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Chapter 28: Accounting for Corporate Social Responsibilities
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21 Verified Questions
21 Flashcards
Source URL: https://quizplus.com/quiz/71413
Sample Questions
Q1) Describe three means by which governments may take action that is likely to require businesses to act in a socially responsible manner.For each of these three means,explain what considerations are likely to influence a government decision to use that particular method in preference to the others.
Q2) The extent to which mandatory reporting of corporate environmental and social activities is useful can be questioned because:
A) it is too difficult to measure the costs of such activities
B) it may become merely a public relations or similar self-justifying exercise
C) it is a waste of time forcing companies to report
D) all of the above
Q3) Describe two possible approaches to the reporting of socially responsible activities by businesses.Explain the difficulties or weaknesses in these approaches.Then suggest ways in which these difficulties or weaknesses might be overcome or reduced in each case.
Q4) 'A conflict of interest can be argued to exist between maximisation of shareholder's wealth and social responsibility'.Discuss this statement with respect to Australian corporations that have call centres in countries such as India or major Australian supermarkets that import goods from China when they are readily available in Australia.
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Chapter 29: Ethics in Accounting
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20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) Ethical egoism is based on a belief that people should act in a way that:
A) maximises the 'good' of the person making the decision
B) maximises the 'common good'
C) maximises good to the top stratum of the elite
D) conforms with the rules established by God
Q2) It is true that the principle of 'professional behaviour' in the Code of Ethics for Professional Accountants:
A) requires a member to avoid any action or omission that may bring discredit to the profession
B) is, in sense, a catch all provision that covers unethical behaviour not included elsewhere in the code
C) covers accountants behaviour outside their professional role
D) all of the above
Q3) 'Assessing the costs and benefits of ethical behaviour is subjective'.Discuss this statement by considering the costs and benefits of ethical and unethical behaviour of accountants.
Q4) Should accountants act ethically? Explain the reasons for your answer to this question.
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