Intermediate Financial Accounting Practice Exam
Course Introduction
Intermediate Financial Accounting builds upon the foundational principles learned in introductory accounting courses, delving deeper into the theory and application of financial reporting. This course covers advanced topics such as income recognition, asset and liability valuation, complex equity transactions, and the analysis of financial statements in accordance with generally accepted accounting principles (GAAP). Students will gain practical skills in interpreting and preparing financial statements, understanding the impact of accounting choices on financial results, and applying critical thinking to resolve accounting issues in real-world scenarios. Emphasis is placed on ethical practices and the evolving standards in the accounting profession.
Recommended Textbook
Understanding Australian Accounting Standards 1st Edition by Janice Loftus
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Page 2
Chapter 1: Accounting Regulation and the Conceptual Framework
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Q1) Currently the Australian conceptual framework comprises:
A) the Framework for the Preparation and Presentation of Financial Statements.
B) the Conceptual Framework for Financial Reporting.
C) the Framework for the Preparation and Presentation of Financial Statements, SAC 1, and SAC 2.
D) the Conceptual Framework for Financial Reporting, SAC 1, and SAC 2.
Answer: C
Q2) Members of the IASB are appointed by:
A) the Monitoring Board.
B) the IFRS Advisory Council.
C) the IFRS Foundation Trustees.
D) the IFRS Interpretations Committee.
Answer: C
Q3) The definition of equity as given in the Conceptual Framework shows that:
A) Equity = Assets - Expenses
B) Equity = Assets - Liabilities
C) Equity = Income - Expenses
D) Equity = Assets - Liabilities - Expenses
Answer: B
3
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Chapter 2: Application of Accounting Theory
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Q1) Normative theories:
A) prescribe what should be the case based on a specific objective.
B) are based on what is happening in the world.
C) explain why people behave in certain ways.
D) predicts unobserved phenomena.
Answer: A
Q2) Which form of market efficiency is the most relevant to financial reporting?
A) The weak form of market efficiency.
B) The semi-strong form of market efficiency.
C) The strong form of market efficiency.
D) None of the options is correct.
Answer: B
Q3) Considering whether to use historical cost or fair value relates to which of the following components in accounting policy decisions?
A) Definition
B) Recognition
C) Measurement
D) Disclosure
Answer: C
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Page 4
Chapter 3: Shareholders Equity: Share Capital and Reserves
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Q1) For-profit companies may be I Unlimited
II Listed
III Limited by guarantee
IV No-liability
A) II and III only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV
Answer: D
Q2) Gains or losses that arise as a result of translating foreign currency denominated operations into the reporting currency are recognised in income:
A) in the reporting period in which they arise;
B) only when the interest in the foreign operation is sold;
C) only if they are material items;
D) only when they are settled in cash.
Answer: B
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Chapter 4: Fair Value Measurement
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Q1) The market with the greatest volume and level of activity for the asset or liability is defined as the:
A) active market
B) principal market
C) liquid market
D) most advantageous market
Q2) Trademarks would be measured primarily using which type of inputs?
A) Level 1 inputs
B) Level 2 inputs
C) Level 3 inputs
D) Level 4 inputs
Q3) Non-performance risk refers to the risk that:
A) a market participant will not fulfil an obligation
B) the holder of the liability will not fulfil an obligation
C) the counterparty will not fill an obligation
D) the holder of a corresponding asset will not fulfil an obligation.
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Chapter 5: Revenue
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Q1) Which of the following items are defined in AASB 118?
A) Income
B) Revenue
C) Gains
D) All of the above
Q2) On 1 July 2010 ABC Ltd purchased a 5-year $1000 5% debenture for $957.88. The current market rate of interest is 6%. The maturity date is 30 June 2015. Interest is payable annually on 30 June.
The interest income that ABC would recognise for the year ended 30 June 2011 is:
A) $47.89
B) $50.00
C) $57.47
D) $60.00
Q3) The introduction of IFRIC 13 Customer Loyalty Programmes had the following impact on revenue recognition policies for entities in the airline industry:
A) no impact
B) reduced the amount of revenue able to be recognised
C) increased the amount of revenue able to be recognised
D) changed the timing of the recognition of revenue
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Page 7
Chapter 6: Provisions, Contingent Liabilities and Contingent Assets
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Q1) Which of the following is not within the scope of AASB 137?
A) The treatment of future operating losses
B) The treatment of contingent assets
C) The treatment of restructuring provisions arising from a business combination
D) The treatment of onerous contracts
Q2) Which of the following statements is correct?
A) a provision is a class of liabilities
B) a contingent liability is a class of liabilities
C) a provision is a class of contingent liabilities
D) contingent liabilities and provisions are classes of liabilities
Q3) A railway company is required, under law, to overhaul its rail-tracks every three years as a safety measure. The appropriate treatment of this event for the purposes of preparing financial statements is:
A) recognise as a provision for future maintenance costs;
B) estimate the future maintenance costs and charge as depreciation over the next three years;
C) disclose in the notes as a contingent liability, but do not recognise;
D) estimate the future cash outflows and discount to determine the amount to be recognised as a deferred liability.
Page 8
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Chapter 7: Income Taxes
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Q1) Current tax consequences of business operations give rise to:
A) a deferred liability for income tax payable
B) a current liability for income tax payable
C) a non-current liability for taxes payable
D) a contingent liability for taxes payable.
Q2) In jurisdictions where the impairment of goodwill is not tax deductible, AASB 112 Income Taxes:
A) does not permit the application of deferred tax accounting to goodwill
B) allows the recognition of a deferred tax item in relation to goodwill
C) requires that any deferred tax items in relation to goodwill be recognised directly in equity
D) requires that any deferred tax items for goodwill be capitalised in the carrying amount of goodwill.
Q3) The tax effect method of accounting for a company's income tax is based on an assumption that:
A) income tax expense is equal to income tax payable
B) an accounting balance sheet and a tax balance sheet are the same
C) a tax balance sheet is prepared according to accounting standards
D) income tax expense is not equal to current tax liability.
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Page 9
Chapter 8: Financial Instruments
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Q1) When first issued, AASB 139 was:
A) More rule-based than other AASB standards
B) Less rule-based than other AASB standards
C) Wider in scope that other AASB standards
D) Narrower in scope that other AASB standards
Q2) All of the following would be regarded as financial instruments except:
A) bank overdraft;
B) notes payable;
C) cash;
D) equipment.
Q3) The degree to which changes in the fair value or cash flows of a hedge item that are attributable to a hedge risk are offset by the changes in the fair value or cash flows of a hedging instrument, describes:
A) transaction exposure;
B) hedge ineffectiveness;
C) hedge effectiveness;
D) transaction variability.
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Chapter 9: Share-Based Payments
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Q1) The cumulative remuneration expense to be recognised by Fantasy as at 30 June 2015 is:
A) $7800
B) $17 800
C) $35 600
D) $124 600
Q2) A share-based payment transaction in which the entity receives goods or services as consideration for equity instruments of the entity is classified in AASB 2 Share-based Payment as
A) an equity-settled share-based payment transaction
B) a cash-settled share-based payment transaction
C) a liability-settled share-based payment transaction
D) an "other" share-based payment transaction
Q3) What is the fair value of the cash alternative?
A) $240 000
B) $250 000
C) $288 000
D) $300 000
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11
Chapter 10: Translation of the Financial Statements of Foreign Entities
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Q1) Post acquisition date retained earnings that are denominated in a foreign currency are:
A) translated into the functional currency using the rate current at the latest end of reporting period;
B) translated into the functional currency using the average rate since acquisition date;
C) translated into the functional currency using the rates at the end of each year since acquisition date;
D) balances carried forward from translation of previous statement of comprehensive income and do not need to be translated.
Q2) If the local currency of Sing Sing is Singapore dollars and the functional currency is Australian dollars the total assets of S$900,000 would translate into Australian dollars as:
A) $703 125
B) $709 688
C) $1 141 500
D) $1 152 000
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Chapter 11: Employee Benefits
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Q1) ABC Ltd employs 5 staff. Each staff member is entitled to 20 days annual leave per annum. Leave loading of 17.5% is paid when the leave is taken. On 31 December 2013 Joan Rivers left the company and was paid out her untaken leave entitlements. Joan had 12 days leave owing at 1 July 2013 and took 4 days leave between 1 July and 31 December 2013. Her salary at the time of her departure was $140 000.
There are 260 work days in a year. On 1 July each year all employees receive a 3% wage rise. There are no other wage rises given during the year.
The gross entitlement owing to Joan Rivers on 31 December 2013 was:
A) $17 715
B) $9692
C) $5061
D) $11 388
Q2) An entity is able to record a provision for termination benefits when it:
A) has a detailed formal plan
B) has a definite intention of terminating employment
C) has received Board approval for the termination benefits
D) can no longer withdraw the offer of the benefits
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Chapter 12: Inventories
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Q1) AASB 102 allows which of the following to be capitalised into the cost of inventory?
A) storage costs for finished goods
B) selling costs
C) normal wastage costs
D) administrative overheads
Q2) Net realisable value of inventories may fall below cost for a number of reasons including:
I Product obsolescence.
II Physical deterioration of inventories.
III An increase in the expected replacement costs of the inventory,
IV An increase in the estimated costs of completion.
A) I, II and IV only;
B) I, III and IV only;
C) II, III and IV only;
D) I and II only.
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Page 14
Chapter 13: Property, Plant and Equipment
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Q1) Under the cost model, after initial recognition of a Property, plant and equipment asset the item must be carried at its:
A) residual value
B) cost less accumulated depreciation and less accumulated impairment losses
C) initial cost
D) net present value.
Q2) Which of the following statements is NOT correct in relation to disclosure of property, plant & equipment balances?
A) Paragraph 79 of IAS 16 contains disclosure that are encouraged, but not required in relation to property, plant & equipment.
B) An entity must disclose the useful life estimates for each class of assets.
C) A summary of movements in the revaluation surplus is required to be disclosed.
D) Information on assets carried at revalued amounts must be disclosed on an individual asset basis.
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15
Chapter 14: Leases
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Q1) A finance lease is an agreement between an owner of an asset and a user of that asset wherein the:
A) legal title to property is transferred to the lessee when the first lease payment is made
B) ownership passes to the lessor on inception date of the lease
C) substantially all of the risks and benefits of ownership remain with the lessor
D) usual risks and benefits of ownership are transferred to the user
Q2) Which of the following is NOT one of the situations provided in AASB 117 in relation to the classification of leases as finance leases?
A) Losses from the fluctuation of the fair value of the residual accrue to the lessee
B) Leased assets are of a specialised nature
C) The lessee has provided a guarantee that they will acquire the asset at the end of the lease term
D) The lease is for a major part of the economic life of the asset.
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Chapter 15: Understanding Australian Accounting Standards
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Q1) Under AASB 138 Intangibles, an intangible asset with an indefinite useful life is:
A) not able to be recognised by an entity as an asset
B) not subject to annual amortisation charges
C) amortised using the straight-line method over a period of no more than 20 years
D) amortised using the reducing balance method over a period not exceeding 5 years.
Q2) The original and planned investigation undertaken with the prospect of gaining new knowledge is described as:
A) exploration
B) development
C) investigation
D) research
Q3) AASB 138 Intangibles, requires that the following items in relation to intangibles, each be disclosed separately:
A) the opening balance of each intangible
B) the closing balance of each intangible
C) any impairment losses reversed in profit or loss during the period
D) all amounts of intangibles acquired during the period.
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Page 17
Chapter 16: Impairment of Assets
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Q1) When an asset is measured using the revaluation model, any impairment loss is treated as:
A) a revaluation decrement
B) a revaluation increment
C) a set-off against depreciation expense
D) an addition to depreciation expense.
Q2) When goodwill is acquired under a business combination it is subject to an impairment test every:
A) year
B) two years
C) three years
D) five years.
Q3) Constructor Limited estimated an impairment loss of $500 against its single cashgenerating unit. The company had the following assets: Headquarters Building $1000; Construction Plant $600; Equipment $400. The net carrying amount of the Equipment after allocation of the impairment loss is:
A) $200
B) $400
C) $300
D) $0
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Chapter 17: Accounting for Mineral Resources
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Q1) Which of the following is NOT within the scope of the IASB extractive activities project?
A) the definition of reserves and resources
B) whether to expense or capitalize costs recognised after recognition of reserves and resources as assets
C) measurement of reserves and resources on initial recognition as an asset
D) disclosure requirements for reserves and resources
Q2) The entry to record an obligation for removal and restoration incurred during the exploration and evaluation (E&E) phase of a mining project is:
A) DR \(\quad\)E&E asset\(\quad\)\(\quad\)\(\mathrm { xx }\)
CR \(\quad\)E&E expense\(\quad\)\(\quad\)\(\mathrm { xx }\)
B) DR \(\quad\)E&E expense\(\quad\)\(\quad\)\(\mathrm { xx }\)
CR \(\quad\)Provision for removal and restoration\(\quad\)\(\mathrm { xx }\)
C) DR \(\quad\)Removal and restoration expense\(\quad\)\(\quad\)\(\mathrm { xx }\)
CR\(\quad\) E\&E asset\(\quad\)\(\quad\)\(\mathrm { xx }\)
D)DR \(\quad\)E&E asset\(\quad\)\(\quad\)\(\quad\)\( \mathrm{xx} \)
\( \mathrm{CR} \) \(\quad\)Provision for removal and restoration\(\quad\)\(\quad\)\( \mathrm{xx} \)
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Chapter 18: Agriculture
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Q1) AASB 141 requires disclosure of which of the following?
I aggregate gain or loss on initial recognition of biological assets
II fair value of agricultural produce harvested during the period, at point of harvest
III fair value changes attributable to physical changes
IV fair value changes attributable to price changes
A) I and II only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV
Q2) There have been no changes in fair values between 1 April and 30 June 2014. At 30 June 2014 the vines will be recorded in WineCo's financial statements at an amount of:
A) $2 580 000
B) $2 600 000
C) $2 980 000
D) $3 100 000
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Chapter 19: Financial Statement Presentation
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Q1) In respect to the statement of profit or loss and other comprehensive income of an entity, AASB 101 prescribes:
A) a fixed format for the presentation of items in the statement of profit or loss and other comprehensive income
B) line items that are considered to be of sufficient importance to warrant presentation
C) the presentation of line items of revenue, but not of income
D) the presentation of line items comprising total expenses, but not line items comprising total revenue.
Q2) Under AASB 101 Presentation of Financial Statements, which of the following items is disclosed separately on the face of a statement of financial position?
A) Income tax expense
B) Revenue
C) Investment property
D) Profit attributable to members of the parent.
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21
Chapter 20: Statement of Cash Flows
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Q1) Items classified as financing activities on an entity's Statement of Cash Flows are usually associated with:
A) movements in non-current liabilities and equity
B) sales of goods and services by the entity
C) disposal of non-current assets
D) purchase on shares by the entity.
Q2) The following information was extracted from the records of Ustinof Limited
Opening balance of Equipment, $360 000
Closing balance of Equipment, $400 000
Cost of new Equipment, $80 000
Proceeds from sale of Equipment, $6000 (Cost $40 000; Carrying amount $10 000)
The total cash flows from investing activities is determined as
A) $40 000 cash outflow
B) $74 000 cash outflow
C) $76 000 cash outflow
D) $80 000 cash outflow.
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Chapter 21: Earnings Per Share
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Q1) The diluted earnings per share at 30 June 2014 is:
A) $0.80
B) $0.94
C) $1.24
D) $4.00
Q2) Under paragraph 4, if an entity presents both consolidated and separate financial statements, the AASB 133 disclosures need only be determined on the basis of:
A) parent entity only
B) subsidiary entities only
C) consolidated information
D) the entity has choice of either parent entity or consolidation
Q3) For the purposes of calculating diluted earnings per share, an entity shall adjust the profit attributable to ordinary shareholders by the after-tax effect of the following item(s) related to dilutive potential ordinary shares:
A) dividends only
B) dividends, interest, other income or expenses
C) interest only
D) other income or expenses only
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Chapter 22: Operating Segments
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Q1) For financial reporting periods commencing prior to 1 January 2009, the accounting standard relating to segment reporting was:
A) AASB 8 Operating Segments;
B) AASB 114 Segment Reporting;
C) AASB 114 Operating Segments;
D) AASB 8 Segment Reporting.
Q2) A key objective of providing financial reporting information by segment is:
A) to allow detailed analysis to be undertaken by users such as segment profit margin analysis;
B) to allow the user to better understand the entity's future performance; C) to highlight poorly performing areas of an entity's business to users; D) to allow users to better assess the entity's risks and returns.
Q3) AASB 8 Operating Segments is applicable for financial reporting periods _____ on or after 1 January 2009. Early adoption is _______.
A) ending, not permitted;
B) ending, permitted; C) beginning, not permitted; D) beginning, permitted.
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Chapter 23: Operating Segments
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Q1) In the case where financial statements of parent entity or the ultimate controlling entity are not made publicly available, the reporting entity must disclose:
A) the name of the entity's largest shareholder;
B) the name of the next most senior parent entity whose financial statements are publicly available;
C) the reason of why the parent entity does not make its financial statements publicly available;
D) the level of share ownership of the next most senior parent entity.
Q2) The contractually agreed sharing of control over an economic entity is known as:
A) significant influence;
B) significant control;
C) joint control;
D) joint venture.
Q3) The minimum disclosures for related party transactions include the followings, except:
A) provision of doubtful debts related to outstanding balances;
B) the amount of transactions;
C) the amount of the outstanding balances and commitments;
D) the key management personnel of the related party.
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Chapter 24: Business Combinations
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Q1) Where the acquirer purchases assets and assumes liabilities of another entity it does NOT need to consider measurement of:
A) consideration transferred
B) fair values of identifiable net assets
C) carrying amounts of identifiable net assets
D) goodwill
Q2) Goodwill arising in a business combination is classified as:
A) an item in equity
B) a liability
C) an expense associated with the acquisition
D) an asset
Q3) In a business combination, the acquirer is the party that:
A) obtains control of the other entities
B) concedes control over the acquired entities
C) sells the acquired entity
D) receives the acquisition consideration.
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Chapter 25: Consolidation: Principles and Accounting Requirements
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Q1) At acquisition date a wholly-owned subsidiary had the following equity items: Retained earnings $14 000
Share capital $30 000
General reserve $ 6 000
In the year following the acquisition the subsidiary transferred $10 000 from pre-acquisition retained earnings, to the general reserve account. At the reporting date following the reserve transfer, the following consolidation adjustment is needed: A)
\(\text { DR } \quad \text { Retained earnings } \quad \$ 10000\)
\(\text { CR } \quad \text { General reserve } \quad \$ 10000\) B)
\(\text { DR } \quad \text { General reserve } \quad \$ 10,000\)
\(\text { CR } \quad \text { Shares in subsidiary } \quad \$ 10,000\) C)
\(\text { DR } \quad \text { Shares in subsidiary } \quad \$ 10,000\)
\(\text { CR } \quad \text { Retained earnings } \quad \$ 10,000\) D)
\(\text { DR } \quad \text { General reserve } \quad \$ 10,000\)
\(\text { CR } \quad \text { Retained earnings } \quad \$ 10,000\)
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Chapter 26: Consolidation: Intragroup Transactions
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Q1) AASB 10 Consolidated Financial Statements, requires that intragroup transactions be:
A) eliminated on consolidation to the extent of the parent's interest in the subsidiary.
B) adjusted for in the books of the parent and subsidiary to the extent of the parent's interest in the subsidiary.
C) adjusted for in full in the books of the parent and subsidiary.
D) eliminated in full on consolidation.
Q2) A parent entity made an advance of $50 000 to its subsidiary. The parent charges interest of $3000 on this advance. The consolidation adjustment to eliminate the advance is:
A) DR Interest revenue \(\quad\$ 53000\)
CR Interest expense \(\quad\$ 53000\)
B) DR Interest expense \(\quad\) \(\$ 53,000\)
\(\quad\)CR Interest revenue \(\quad\)\(\$ 53,000\)
C) DR Advance to subsidiary \(\quad\)\(\$ 50,000\) \(\quad\)CR Advance from parent \(\quad\) \(\$ 50,000\)
D)DR Advance from parent \(\quad\) \(\$ 50,000\) \(\quad\)CR Advance to subsidiary \(\quad\)\(\$ 50,000\)
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Page 28
Chapter 27: Consolidation: Non Controlling Interest
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Q1) Which of the followings is not the reason of why entities do not use the full goodwill method?
I made a change to the original question, as the original question is very similar to Q3.
A) Users of financial statements do not see any value in the reported NCI.
B) It is more costly to measure NCI at fair value.
C) It results in less reliable NCI information due to difficulties in measuring NCI at fair value.
D) There is not sufficient evidence to assess the marginal benefits of reporting the acquisition-date fair value of the NCI.
Q2) According to AASB 10 Consolidated Financial Statements, the term 'non-controlling interest' means:
A) the total equity of the combined group
B) the equity in the parent entity other than the portion owned by the subsidiary entity
C) the equity in the economic entity other than that which can be attributed to the subsidiary entity
D) equity in a subsidiary not attributable, directly or indirectly, to a parent.
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Chapter 29: Joint Arrangements
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Q1) Which of the following statements is not true in relation to joint control?
A) each party must have an equal interest for joint control to exist
B) joint control exists only where there is contractually agreed sharing of control
C) entities over which a party has joint control are accounted for in accordance with AASB 11 Joint Arrangements
D) joint control requires the unanimous consent of the parties sharing control
Q2) In relation to the supply of a service to a joint operation by one of the joint operators, which of the following statements is correct?
A) a joint operator can recognise 100% of the earned through the supply of services to the joint operation;
B) a joint operator is entitled to recognise a profit from the supply of services to itself;
C) a joint operator cannot earn a profit on supplying services to itself;
D) a joint operator is not able to recognise the service revenue or service cost for the services supplied to the joint operation.
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Chapter 30: Associates and Joint Ventures
Available Study Resources on Quizplus for this Chatper
26 Verified Questions
26 Flashcards
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Sample Questions
Q1) At 30 June 20X5 the equity accounted balance of the investment in Leo was:
A) $50 000
B) $55 000
C) $100 000
D) $105 000
Q2) At 30 June 20X7 the equity accounted balance of the investment in Leo was:
A) NIL
B) ($3500)
C) $4000
D) $16 000
Q3) If an associate incurs losses the investor is required to:
A) ignore the losses for the purposes of equity accounting adjustments;
B) recognise losses only to the point where the carrying amount is equal to the initial investment;
C) recognise losses to the point where the carrying amount of the investment is zero; D) reclassify the investment as a current asset.
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