Intermediate Accounting Review
Questions
Course Introduction
Intermediate Accounting builds upon fundamental accounting principles to deepen students' understanding of financial reporting and analysis. This course emphasizes the application of Generally Accepted Accounting Principles (GAAP) in the preparation and interpretation of financial statements, focusing on complex topics such as revenue recognition, inventory valuation, fixed assets, intangible assets, and liabilities. Students will develop skills in problem-solving, critical thinking, and ethical decision-making while analyzing real-world business scenarios. By integrating theory with practical exercises, Intermediate Accounting prepares learners for advanced accounting studies and professional roles in accounting and finance.
Recommended Textbook
Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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707 Verified Questions
707 Flashcards
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Page 2
Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Sample Questions
Q1) Under the Corporations Act the financial report consists of:
A) comprehensive income statement, balance sheet, statement of cash flow, statement of changes in equity, director's declaration, notes to the financial statements
B) comprehensive income statement, balance sheet, statement of changes in equity, cash flow statement
C) comprehensive income statement, balance sheet, statement of cash flow
D) comprehensive income statement, balance sheet, statement of changes in equity
Answer: A
Q2) Which of these are the main sources of regulations governing financial reporting in Australia?
A) Government legislation, stock exchange listing rules, accounting standards and pronouncement of FAASB
B) Accounting standards, conceptual framework, stock exchange listing rules
C) The Corporations Act, the AASB, CLERP
D) AASB, FRC, government legislation
Answer: A
Q3) Give an overview of the present institutional arrangements for standard setting in Australia.
Answer: Not Answer
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) Under APES1 entities that will always be reporting entities and are required to prepare general purpose financial reports include:
A) family trusts
B) local government
C) stock exchange listed companies
D) both B and C
Answer: D
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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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) Explain and discuss three essential characteristics of an asset as defined by the Framework.
Answer: Not Answer
Q2) The two principle ingredients of relevance specified by the Framework are:
A) confirmation and reliability
B) confirmation and prediction
C) accountability and stewardship
D) reliability and prediction
Answer: B
Q3) Under the Framework,which of these statements is correct?
A) A distinction is made between profit and gains
B) Profit is not defined independently of income and expenses
C) Profit is defined as the amount that can be distributed as a dividend whilst maintaining capital intact
D) None of the statements is correct
Answer: B
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Sample Questions
Q1) The receipt of cash or its equivalent from an income transaction is known as:
A) realisation
B) resolution
C) reception
D) recognition
Q2) Explain and discuss the assertion that current replacement cost provides a more relevant but less reliable measure of assets than historical cost.
Q3) Under the Framework,assets should be recognised in the balance sheet when:
A) future economic benefits can probably be measured reliably
B) future economic benefits are relevant, reliable and material
C) future economic benefits are probable and cost or value can be measured reliably
D) future economic benefits are relevant and can be measured reliably
Q4) In accounting,'value' can mean:
A) historical cost
B) market value
C) replacement cost
D) any of the above
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Chapter 5: The Choice of Accounting Methods
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Q1) Means by which accountants may be 'creative' in the preparation and presentation of accounting reports is/are:
A) by the way transactions are disclosed
B) by the way estimates and predictions are made
C) by the timing of transactions
D) all of the above
Q2) All of these are ways in which accountants may be 'creative' in the preparation and presentation of financial reports except:
A) by timing transactions within the limits of generally accepted accounting practice
B) by changing an accounting policy to achieve a desired outcome
C) by making estimates in a way biased towards achieving a desired outcome
D) none of the above, i.e., all are ways in which accountants may be 'creative'
Q3) The choice of accounting methods and/or their use to achieve a particular outcome in the financial reports is known as:
A) environmental accounting
B) creative accounting
C) imaginative accounting
D) bottom of the harbour accounting
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Chapter 6: The Balance Sheet: an Overview
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Q1) Additional line items to those disclosed in accordance with paras 68 and Aus68.1 of AASB 101 may be included on the face of the statement of financial position when disclosure of these items is assessed to be relevant to an understanding of the entity's financial position.This assessment is based on which of the following?
A) The nature and liquidity of assets
B) The function of the assets within the entity
C) The amounts, nature and timing of liabilities
D) All of the above
Q2) Separate disclosure,on the face of the statement of financial position,is required under AASB 101 paragraph 54 for:
A) trade and other receivables
B) inventories
C) provisions
D) all of the above
Q3) Which of the following items is a non-monetary asset?
A) Loan
B) Inventories
C) Accounts receivable
D) All of the above are non-monetary assets
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Page 8
Chapter 7: Accounting for Current Assets
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Q1) Before the final payment has been made,inventory purchased under a hire purchase agreement is:
A) under the control of the purchaser
B) owned by the seller
C) recognised as an asset by the purchaser
D) all of the above
Q2) 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
Q3) The justification for the inventory valuation rule,the lower of cost and net realisable value,is:
A) conservatism
B) cost versus benefit
C) reliability
D) materiality
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) Under AASB 123 'Borrowing Costs',a qualifying asset is defined as:
A) an asset that takes more than twelve months to complete
B) an asset that necessarily takes a substantial period of time to get ready for its intended use or sale
C) a long-term construction project for the construction of ships, dams, roads or buildings
D) an asset that necessarily takes more than two years to complete
Q2) Assume that an asset was bought at a cost of $50 000.It is expected that the asset will have a useful life of 10 years with the straight-line depreciation method being used.At the beginning of year 5 the total useful life is re-estimated downward to 8 years.Under AASB 116 the annual depreciation expense for the final years of useful life is:
A) $7500
B) $5000
C) $4500
D) $3000
Q3) Explain and discuss how donated assets should be recorded in the accounts.
Q4) Should borrowing costs incurred during the construction period of an asset be expensed or capitalised? Discuss.
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Page 10
Chapter 9: Accounting for Company Income Tax
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Q1) Accounting Profit and Taxable Income can often differ because:
A) a tax deduction is not allowed for bad debts
B) revenue received in advance is not subject to tax
C) general purpose financial reporting and the income tax system have differing objectives
D) the Australian Taxation Office does not recognise depreciation as a legitimate expense
Q2) Unused (carried forward)tax losses:
A) sometimes give rise to a deferred tax liability
B) sometimes give rise to a deferred tax asset
C) always give rise to a deferred tax asset
D) always give rise to a deferred tax liability
Q3) McDougall Ltd shows a deferred tax liability of $25 000 in its financial reports.This could have arisen from:
A) making a payment of interest in advance in respect of the following financial year
B) making a provision for doubtful debts when the debts have not yet been written off
C) an unexpected gain from the sale of land owned by the Company
D) an under-statement of income tax payable in a prior year
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11
Chapter 10: Accounting for Investments
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Q1) Under AASB 139,in relation to financial assets,which statement is incorrect?
A) They must initially be recorded at fair value
B) Both gains and losses arising from changes in fair value must be recognised in the income account
C) It is a requirement that revaluations be carried out at least every five years
D) None of the statements is incorrect
Q2) Under AASB 128,which of these factors is likely to suggest the presence of significant influence?
A) Representation on the board of directors of the investee
B) Material transactions between the investor and the investee
C) Interchange of managerial personnel
D) All of the above
Q3) Which statement is correct regarding shares purchased by one company in another to make use of temporary idle cash balances?
A) They will normally be sold when the company needs cash
B) They must always be measured at cost
C) They can be classified as either current or non-current assets
D) All of the statements are correct
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Chapter 11: Accounting for Intangible Assets
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Q1) Which of these accounting standards applies to goodwill?
A) AASB 3
B) AASB 136
C) AASB 138
D) All of the above
Q2) AASB 138 prohibits recognising as intangible assets all internally generated:
A) costs of patents
B) brand names costs
C) trademark costs
D) all of the above
Q3) Which of these is not an identifiable intangible asset?
A) Patent
B) Franchise
C) Television station license
D) None of the above, i.e., all are identifiable intangible assets
Q4) Compare the costs likely to be recorded for internally developed patents with those associated with a patent purchased in an arm's length transaction.
Q5) 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) Managers will often have strong incentives to favour operating leases over finance leases.This is because:
A) operating leases are recorded on the balance sheet. This results in an increased debt ratio and a lower return on total assets
B) finance leases are recorded on the balance sheet. This results in a decreased debt ratio and a lower return on total assets
C) finance leases are recorded on the balance sheet. This results in an increased debt ratio and a lower return on total assets
D) None of the above. Managers do not prefer operating leases
Q2) (a)What are the main characteristics of a sale-and-leaseback agreement and of a leveraged lease respectively?
(b)Explain the meaning and significance of the terms 'bargain purchase option' and 'guaranteed residual value' in relation to a lease agreement.
Q3) Explain the main similarities and differences between an operating lease and a finance lease,and state how each is treated in the financial statements of a business.
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Chapter 13: Accounting for Employee Benefits
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Q1) Which of the following is excluded from the scope of post-employment benefit considered by AASB 119?
A) Superannuation
B) Termination benefits
C) Administrative support
D) Free travel
Q2) The superannuation trust fund is a separate entity which manages the fund's assets and is responsible for the fund's obligations.The employer's only assets and liabilities are related to the accrual or deferral of the payments due to the superannuation plan.
Discuss whether you agree or disagree with the above approach to accounting for superannuation costs by employers.
Q3) There are two types of risk associated with post-employment benefits,investment risk and actuarial risk.Explain these terms and describe the situations when these risks are borne by the employee and when they are borne by the employer (in accordance with AASB 119).
Q4) Discuss the measurement issues associated with accounting for short-term and long-term employee benefits.
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Chapter 14: Accounting for Financial Instruments
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Sample Questions
Q1) A 'hedging' financial instrument can:
A) protect against losses from adverse movements in foreign exchange rates
B) eliminate any possible gain from changes in the Australian dollar/US dollar exchange rate
C) offset the risk of loss from adverse commodity price changes
D) do all of the above
Q2) SPI 200 futures contracts:
A) cease trading on the third Thursday of the contract month
B) are settled on the third Thursday of the contract month
C) may only be used by traders
D) all of the above
Q3) Financial instruments include accounts receivable,accounts payable,futures contracts,equity securities and options.Which of the following statements is correct?
A) Accounts receivable, accounts payable and options are primary financial instruments
B) Equity securities and futures contracts are primary financial instruments
C) Accounts receivable and accounts payable are derivative (secondary) financial instruments
D) None of the above is correct
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Chapter 15: Equity
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Sample Questions
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) Which of the statements is incorrect? Under a compensatory compared to a non-compensatory plan to allow employees to acquire shares in their company:
A) the offer is likely to include specific performance hurdles
B) the offer will be required to be taken up immediately
C) the number of options offered will differ among individual employees
D) none of the statements is incorrect
Q3) Explain the nature of compound financial instruments and how to account for them in Australia.
Q4) Whitely Ltd issues 50 000 shares at $4.60 per share.The accounting effect of the issue is:
A) debit cash at bank $230 000, credit share capital $230 000
B) debit applications $230 000, credit share capital $230 000
C) debit cash at bank $50 000, credit share capital $50 000
D) none of the above
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Chapter 16: The Income Statement
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Q1) Which statement is not correct?
A) Revenue is a subset of income
B) Under AASB 118, revenue is defined as a gross flow which means that amounts collected on behalf of third parties, such as goods and services taxes, are excluded from revenue
C) AASB 118 applies to revenue arising from disposal of assets other than goods, contributions of assets and forgiveness of liabilities
D) None of the above, i.e., all are correct statements
Q2) Explain and discuss how profit results may be manipulated if the rules allow the separate reporting of operating items and extraordinary items.Explain how accounting standard setters in Australia have responded to a perceived creative approach to extraordinary items in the previous standard.Do you think their response is justified?
Q3) Which items bypass the profit figure under the operating-profit approach?
A) Revenues and expenses resulting from changes in accounting policies
B) Revenue and expenses relating to prior periods
C) Revenues and expenses relating to events outside the ordinary operations of the entity
D) All of the above
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18
Chapter 17: The Cash Flow Statement
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Q1) Discuss the arguments for and against the presentation of the cash flow statement using the indirect approach rather than the direct approach.
Q2) All of these are classified as financing items under AASB 107 'Cash Flow Statements'-2 except:
A) in the cash flow statement of the lender cash repayments by borrowers
B) cash paid to buyback the company's shares
C) proceeds from the issue of debentures
D) none of the above, i.e., all are classified as financing items
Q3) Distinguish between the three concepts of funds which can be used to construct a cash flow statement: cash,working capital and total resources.Which concept do you think provides the most useful information for decision making?
Q4) Income tax paid,proceeds from long-term borrowing and loans made to directors would be presented in a statement of cash flows,as:
A) financing outflow: financing inflow; financing outflow
B) operating outflow: investing inflow; investing outflow
C) operating outflow: financing inflow; investing outflow
D) none of the above
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Page 19
Chapter
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Q1) Which of the following items need not be shown when reporting primary segment information for a business?
A) Segment results
B) Segment revenues
C) Segment receivables
D) Segment liabilities
Q2) A business reports the following in its financial statements:
\[\begin{array} { l r }
\text { Net profit before tax } & \$ 150 \\
\text { Interest expense } & 20 \\
\text { Income tax expense } & 30 \\
\text { Total assets at the beginning of the year } & 700 \\
\text { Total assets at the end of the year } & 850
\end{array}\] Its rate of return on total assets is:
A) 19.4%
B) 21.9%
C) 16.8%
D) 4.83%
Q3) 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) Which of the following statements is not true of Special Purpose financial statements?
A) They are implicitly the reports prepared by non-reporting entities
B) They must state that the financial statements are special purpose financial statements
C) They must disclose the significant accounting policies adopted in the preparation and presentation of the Special Purpose Financial Statements
D) None; all statements are true
Q2) Discuss how modern electronic means of communication,such as e-mail and the Internet,might assist continuous reporting and interim reporting requirements.Are there any possible disadvantages in using such electronic means of communication?
Q3) Concise financial reports:
A) must be drawn up in accordance with AASB's
B) must achieve consistency with the changes in terminology contained in AASB 101
C) must include a statement of comprehensive income, a statement of financial position, a statement of cash flows and a statement of changes in equity
D) all of the above
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Chapter 20: Accounting for the Extractive Industries
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Q1) The accountant for a mining exploration company presents the following figures to the directors of the company as being possible values that could be assigned to its total non-current assets (comprising exploration and evaluation costs and purchases of plant and machinery to date)- $750 000,$1 600 000,or $2 350 000.Use of the figure $2 350 000 indicates that the company is probably using which of the following methods of accounting for exploration and evaluation costs?
A) Expense
B) Full-cost
C) Successful-efforts
D) Area-of-interest
Q2) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
Q3) Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources does not identify which of the following phases in the exploitation of mineral,oil or gas deposits?
A) Production
B) Restoration
C) Construction
D) Evaluation
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Page 22
Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) 'To recognise assets and liabilities when a firm construction contract is signed would be inconsistent with the requirements of AASB 111'.Discuss this statement in reference to the framework.
Q2) 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
Q3) 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
Q4) Compare and contrast the two types of contract distinguished by AASB 111,and provide an example of each.
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Chapter 22: Accounting for Agricultural Activity
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Q1) Agricultural activity should:
A) sometimes be classified as non-current assets
B) always be classified as current assets
C) always be classified as non-current assets
D) always be classified as inventories
Q2) 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?
Q3) Agricultural activity under the heading of Biological assets such as animals is most appropriately measured for accounting purposes at:
A) standard value
B) net realisable value
C) discounted market value
D) historical cost
Q4) Applying fair value to agricultural activity is assumed on the basis that it can be measured reliably.What do you think could potentially cause an asset's measurement to be unreliable,and why? How detailed should be the disclosure of any inherent unreliability?
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24
Chapter 23: Accounting for Superannuation Plans
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Q1) Australian Accounting Standard AAS 25 'Financial Reporting by Superannuation Plans' requires that,wherever possible,the amount recorded for accrued liabilities of a defined benefit superannuation plan:
A) include allocated and unallocated contributions
B) be measured in present value terms using a published discount rate
C) equal the assets of the plan less the sum of tax and sundry liabilities
D) be measured in present value terms using an appropriate, risk-adjusted discount rate
Q2) 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
Q3) Discuss the differences between the requirements of ED179 and AAS 25.
Q4) Explain the essential features of a defined benefit,externally managed,non-contributory superannuation plan whose benefits are not vested.
Q5) Discuss the roles of APRA,Asic and the ATO in the regulation of the superannuation industry.
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Chapter 24: Accounting for Financial Institutions
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Q1) The Income statement of a bank should show its assets:
A) all listed in order of liquidity
B) divided under the headings of current assets and non-current assets
C) all as current assets
D) all as current assets except for property, plant and equipment
Q2) Under AASB 1023,the revenue from the premium for a general insurance policy should be recorded as earned:
A) when the policy is signed by both parties
B) from the attachment date, allocated to the reporting periods to which the premium relates
C) on the attachment date, when the insurer accepts the risk
D) when the premium is paid in full by the insured
Q3) What is the essential purpose of a general insurance policy? List and briefly explain the nature of each of the main items of (a)income and (b)expense for a general insurance business.Similarly,list and briefly explain the nature of each of the major (c)assets and (d)liabilities of a general insurance business.
Q4) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
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Page 26
Chapter 25: Financial Reporting in the Public Sector
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Q1) 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
Q2) Who are the likely main users of general-purpose financial reports of (a)governments and (b)private sector businesses? Briefly outline why each user group listed under (a)might be interested in the general-purpose financial reports of governments.Then explain the reasons for any similarities and/or any differences between the two lists of users.
Q3) A Government Trading Enterprise is 'corporatised' when it is restructured into a company and:
A) special legislation controls its activities
B) all the shares are held by the government
C) all the shares are held by private investors
D) some of the shares are held by the government and some are held by private investors
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Page 27
Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) The primary benefit of harmonising financial reporting practices around the world is:
A) enhancing the attractiveness of exporting goods and services for smaller businesses
B) reducing the likely risks and costs of making transactions in different countries
C) eliminating the need for firms operating locally and in other countries to file detailed financial reports with regulatory authorities in other countries
D) that investors in international capital markets can make more reliable comparisons of the reports of different entities
Q2) Describe and explain the strategies adopted by the AASB in order to achieve the objective of international harmonisation of accounting standards in Australia.
Q3) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
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28
Chapter 27: Foreign Currency Translation
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Q1) A fair value hedge that meets the requirements under AASB 139 for hedge accounting is accounted for in which of the following ways?
A) Any gain or loss on the hedged item attributable to the hedge risk is recognised in the profit and loss
B) Any gain or loss from re-measuring the hedging instrument at fair value or its foreign currency amount is recognised as equity
C) When a firm commitment to acquire an asset is entered into and it is a hedged item, the initial carrying amount of the asset should never include the cumulative change in fair value of the commitment previously recognised in the balance sheet
D) None of the above describes the correct accounting for a fair value hedge
Q2) A way in which a foreign currency transaction can be hedged is:
A) Buy (or sell) foreign currency at the date of the initial transaction
B) Enter into a forward rate agreement to fix the cost of the currency at a fixed date in the future
C) Enter into a transaction which neutralises the risk (e.g., have accounts receivable and accounts payable in the same currency with the same payment dates)
D) All of the above
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Chapter 28: Accounting for Corporate Social
Responsibilities
Available Study Resources on Quizplus for this Chatper
21 Verified Questions
21 Flashcards
Source URL: https://quizplus.com/quiz/71413
Sample Questions
Q1) '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.
Q2) The statement concerning social responsibility reporting in Australia that is not correct is:
A) Australian companies have been at the forefront of reporting and are well ahead of their counterparts in Europe and the US B) since the 1980s there has been an increasing trend in the quantity and quality of disclosure
C) companies tend to disclose more positive than negative information D) none of the above, i.e., all are correct statements
Q3) The term used to describe any group or individual who can be affected by or is affected by the achievement of the organisation's objectives is:
A) shareholder
B) entity
C) stakeholder
D) lobby group
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Chapter 29: Ethics in Accounting
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) In research on ethical issues faced by accountants in Australia,it was found that the three most common ethical issues faced were:
A) overcharging, professional competence, conflicts of interest
B) confidentiality, honesty, admitting to mistakes
C) conflicts of interest, client proposals to manipulate financial statements and client proposals for tax evasion
D) using inside information for personal gain, client proposals for tax evasion, whistle blowing
Q2) 'Conscience-driven costs' of unethical behaviour include:
A) disciplinary proceedings by a relevant professional body
B) fear of eventual disclosure of the information
C) pressure to act unethically in the future
D) all of the above
Q3) Teleological theories of ethics:
A) determine whether behaviour is ethical or unethical by observing the consequences of that behaviour
B) suggest that people behave with varying degrees of self-interest
C) are based on religious principles
D) can be all of the above
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