International Accounting Standards
Practice Questions
Course Introduction
International Accounting Standards is a course designed to acquaint students with the framework, principles, and application of accounting standards that govern financial reporting on a global scale. The curriculum explores the development, objectives, and key components of International Financial Reporting Standards (IFRS), contrasts them with local Generally Accepted Accounting Principles (GAAP), and examines their impact on multinational corporations and cross-border financial activities. Through case studies and analytical exercises, students learn how to interpret and apply international standards in preparing, presenting, and analyzing financial statements, gaining critical insights into harmonization challenges, regulatory frameworks, and the evolving landscape of global accounting practices.
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) The Corporations Act requires the following entities to prepare a financial report, except for:
A) public companies.
B) small proprietary companies.
C) large proprietary companies.
D) registered schemes.
Answer: B
Q2) According to the Australian Accounting Standards, the following assets can be recorded initially at historical cost, except for:
A) land.
B) inventory.
C) equipment.
D) motor vehicle.
Answer: B
Q3) The definition of income encompasses the following criteria, except:
A) increases in economic benefits.
B) control of increases in economic benefits by the entity.
C) including capital contributions from owners.
D) results in increases in equity.
Answer: C
Page 3
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Chapter 2: Application of Accounting Theory
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Q1) Which of the following problems arises within owner-manager agency relationships?
\[\begin{array} { l l l }
\text { I. } \text { Risk aversion } & \text { III. Clan delution } \\
\text { II. Asset substitution } & \text { IV. } \text { Dividend retention }
\end{array}\]
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.
Answer: B
Q2) The following statements describe the mechanistic hypothesis, except:
A) investors can be misled by the use of different accounting policy choices.
B) investors respond differently to changes in profit depending on what causes the changes.
C) investors ignore differences in accounting policies when analysing financial statements.
D) investors are only concerned about changes in reported figures in financial statements.
Answer: B
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4
Chapter 3: Shareholders Equity: Share Capital and Reserves
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Q1) In relation to an asset revaluation surplus, an entity
A) is not able to use this surplus for the payment of future dividends
B) is able to use this surplus for the payment of future dividends
C) is not able to transfer this surplus to any other reserve account
D) can transfer the surplus to current period profit or loss when the asset is disposed of
Answer: B
Q2) Retained earnings are a component of
A) Contributed equity
B) Reserves
C) Other equity
D) Comprehensive income
Answer: B
Q3) Whether a dividend is paid by a company depends on the decisions made by the:
A) creditors of the company;
B) International Accounting Standards Board;
C) auditors of the company;
D) directors of the company.
Answer: D
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Chapter 4: Fair Value Measurement
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Q1) An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as:
I they hold a net long position
II they hold a net short position
III they have a documented risk management strategy
IV the manage the group of net financial assets and liabilities on a net exposure basis
V transactions are conducted in an orderly market
A) I and III
B) II and IV
C) III and IV
D) II and V
Q2) Which of the following is not a valuation technique prescribed by AASB 13?
A) the fair value approach
B) the income approach
C) the cost approach
D) the market approach
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Chapter 5: Revenue
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Q1) Which of the following is NOT excluded from the scope of AASB 118 Revenue?
A) Accounting for share of joint venture revenue.
B) Subscriptions
C) Revenue arising from primary production activities
D) Revenue arising from oil and gas exploration
Q2) Using the relative fair value approach the amount of revenue recognised in relation to the on-call advice is:
A) indeterminable based on the facts provided
B) $1000
C) $2167
D) $2600
Q3) The two elements of performance referred to in the Conceptual Framework are:
A) assets and liabilities
B) revenue and expenses
C) liabilities and equity
D) expenses and income
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Chapter 6: Provisions, Contingent Liabilities and Contingent Assets
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Q1) Liabilities which fail the recognition criteria and where the possibility of an outflow is remote should:
A) be recognised as an accrual
B) be recognised as a provision
C) be recognised as a contingent liability
D) not be recognised in the financial statement at all
Q2) 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
Q3) Which of the following statements is correct?
A) A present obligation is an example of a legal obligation.
B) A legal obligation is an example of a constructive obligation.
C) A constructive obligation is an example of an equitable obligation.
D) An equitable obligation is an example of a present obligation.
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8
Chapter 7: Income Taxes
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Q1) Differences between the carrying amounts of an entity's net assets determined under accounting standards and accrual accounting, and the tax bases of those net assets determined under the Income Tax Assessment Act, are described as:
A) temporary differences
B) permanent differences
C) tax losses
D) the current income tax liability.
Q2) Which of the following disclosures are optional under AASB 112?
A) the major components of income tax expense
B) the aggregate current tax or deferred tax that arises relating to items that are charged or credited directly to equity
C) the amount of deductible temporary differences and unused tax losses, for which no deferred tax asset is recognised in the statement of financial position
D) a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis of calculating the applicable tax rate.
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Chapter 8: Financial Instruments
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Q1) Which of the following are regarded as financial instruments:
I Deposits held by a financial institution;
II Ordinary shares;
III Raw materials inventories;
IV Property, plant and equipment.
V Accounts receivable and accounts payable.
A) I, II, IV and V only;
B) II, III and IV only;
C) I, II and V only;
D) I, IV and V only.
Q2) Company A has convertible notes on issue. These notes are convertible to ordinary shares of the Company after 3 years. The distributions made to the note holders by Company A are classified by Company A as follows:
A) interest expense.
B) dividends distributed.
C) a portion representing interest expense and a portion representing dividends distributed
D) indeterminable based on the information provided.
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Chapter 9: Share-Based Payments
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Q1) In relation to equity instruments granted by an entity where the entity makes modifications to the terms and conditions attaching to the grant:
A) the incremental fair value is measured as the difference between the fair value of the modified instrument, estimated at the date of modification and that of the original equity instrument, estimated at the date of original granting.
B) if the modification occurs during the vesting period the incremental fair value is recognised immediately.
C) terms or conditions may not be modified in a manner that is not beneficial to the employee.
D) where the exercise price of options is modified, the fair value of the options changes.
Q2) What is the fair value of the equity alternative?
A) $240 000
B) $250 000
C) $288 000
D) $300 000
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Chapter 10: Translation of the Financial Statements of Foreign Entities
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Q1) When translating into the presentation currency the translation difference is recognised:
A) in profit or loss
B) as a separate component of equity
C) in retained earnings
D) as an asset or liability, depending on whether it is a debit or credit balance.
Q2) Indicators pointing towards the local overseas currency as the functional currency include, that the:
I. Parent's cash flows are directly affected on a current basis.
II. Cash flows are primarily in the local currency and do not affect the parent's cash flows.
III. Sales prices are primarily responsive to exchange rate changes in the short-term.
IV. Production costs are determined primarily by local conditions.
A) I and III only;
B) II and IV only;
C) I, III and IV only;
D) I, II and IV only.
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Chapter 11: Employee Benefits
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Q1) Benefits paid to members of a defined contribution post-employment fund are based on:
I\(\quad\) the level of contributions made to the fund
II \(\quad\)remuneration levels while employed
III \(\quad\)number of year's service
IV \(\quad\)investment returns generated by the fund
A) I and II only
B) II and III only
C) III and IV only
D) I and IV only
Q2) AASB 119 does NOT prescribe the accounting treatment for:
A) contributions to defined contribution post-employment benefit funds
B) contributions received by a defined contribution post-employment benefit fund
C) assets arising from defined benefit post-employment benefit plans from the perspective of the employer
D) liabilities arising from defined benefit post-employment benefit plans from the perspective of the employer
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Chapter 12: Inventories
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Q1) Under the periodic inventory approach an appropriate journal entry to measure closing inventory is:
A)
DR Opening inventory (cost of goods sold expense) CR Inventory (asset);
B)
DR Purchases (expense) CR Inventory (asset);
C)
DR Inventory (asset)
CR Closing inventory (cost of goods sold expense);
D)
DR Purchases returns (cost of goods sold expense) CR Inventory (asset).
Q2) Commodity broker traders are able to measure their inventories at:
A) replacement cost
B) nominal cost
C) fair value less costs of disposal
D) current cost
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Chapter 13: Property, Plant and Equipment
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Q1) The cost of property, plant and equipment is only recognised as an asset if it is probable that the future economic benefits will flow to the entity and if:
A) the cost can be reliably measured
B) the asset has been fully paid for in cash
C) the asset has been received by the purchaser
D) it is a tangible asset.
Q2) Depreciation is a process that is designed to:
A) reduce the carrying amount of an asset to reflect the diminishing fair value of the asset;
B) spread the cost of an asset across a period no greater than 5 years;
C) reflect the change in value of an asset as a result of obsolescence;
D) allocate the cost of an asset across its useful life to an entity.
Q3) 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.
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Chapter 14: Leases
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Q1) 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.
Q2) Which of the following is an appropriate journal entry for the initial recognition by a lessee of a finance lease arrangement?
A) DR Leased asset: CR Bank loan
B) DR Cash: CR Leased asset
C) DR Lease liability: CR Leased asset
D) DR Leased asset: CR Lease liability
Q3) On inception date, the present value of the minimum lease payments is:
A) $60 359
B) $64 170
C) $64 584
D) $69 000
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Chapter 15: Understanding Australian Accounting Standards
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Q1) When an intangible asset is acquired by an exchange of assets, which of the following measures will need to be considered in the determination of that cost?
A) The fair value of the asset given up.
B) The initial cost of the asset given up.
C) The carrying amount of the asset received.
D) The replacement cost of the asset received.
Q2) The recognition criteria that an asset must meet before it may be recognised and presented in the financial statements include:
A) that the recognition of the asset is relevant to user decision making;
B) probability that future economic benefits will flow to the entity;
C) that the information about the asset is neutral;
D) a likelihood that the cost of the asset is verifiable.
Q3) Which of the following is a technique proposed by the Initial Accounting for Internally Generated Intangible Assets Discussion Paper to account for internally generated intangibles?
A) hypothetical future value method
B) substituted fair value method
C) planned versus unplanned method
D) expected benefit method
Page 17
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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) Value in use is:
A) amount obtainable from disposal of an asset excluding any selling costs
B) initial cost of an asset less any expected disposal costs
C) incremental costs directly attributable to disposal of an asset
D) the present value of future cash flows expected to be derived from an asset
Q3) 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.
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18
Chapter 17: Accounting for Mineral Resources
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Q1) The scope of AASB 6 is limited to:
A) Exploration and evaluation expenditures
B) Pre-exploration, exploration and evaluation expenditures
C) Exploration, evaluation and development expenditures
D) Pre-exploration, exploration, evaluation and development expenditures
Q2) Which of the following statements in relation to assessing E&E assets for impairment is correct?
A) The level at which and E&E asset is tested for impairment may consist of one or more cash-generating units
B) AASB 6 allows the cash-generating unit or group of cash-generating units to which an E&E asset is allocated to be larger than a segment determined in accordance with IFRS 8.
C) AASB 6 allows E&E assets to be tested for impairment at the individual asset level
D) AASB 6 does not allow the reversal of impairment write-downs made against E&E assets
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Chapter 18: Agriculture
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Q1) AASB 141 requires that biological assets be measured as follows:
A) on initial recognition and at the end of each reporting period at fair value less costs to sell
B) on initial recognition and at the end of each reporting period at its fair value less costs to sell, except where the fair value cannot be measured reliably
C) at fair value-less estimated costs to sell at the point of harvest
D) at fair value less costs to sell at the point of harvest
Q2) Which standard was issued in 2011 that amended AASB 141?
A) AASB 7
B) AASB 101
C) AASB 118
D) AASB 13
Q3) The fair value of cows as at 30 June 2014 is:
A) $943 250
B) $892 500
C) $875 000
D) $816 500
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Page 20
Chapter 19: Financial Statement Presentation
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Q1) Which of the following is NOT an example of an adjusting event under AASB 110?
A) the settlement after reporting date but prior to the date that the financial statements are authorised for issue of a court case which had commenced prior to reporting date.
B) the sale of inventories after reporting date but prior to the date that the financial statements are authorised for issue for an amount below cost.
C) uninsured damage to a material item of machinery after reporting date but prior to the date that the financial statements are authorised for issue for an amount below cost.
D) receipt of advice after reporting date but prior to the date that the financial statements are authorised for issue that a material debtor has been placed in liquidation.
Q2) The application of International Financial Reporting Standards with additional disclosure where necessary is presumed to result in financial statements that: A) will result in a fair presentation; B) contain only material items; C) are free from error and misstatement; D) are unbiased.
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Chapter 20: Statement of Cash Flows
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Q1) AASB 107 encourages, but does NOT require, the disclosure of:
I the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities
II the aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity
III the amount of the cash flows arising from the operating, investing and financing activities of each reportable segment
IV the name(s) of the entity's bankers
A) I, II and IV
B) II, III and IV
C) I, III and IV
D) I, II and III.
Q2) What is the net cash inflow from operating activities?
A) $45 000
B) $59 000
C) $60 000
D) $61 000.
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Chapter 21: Earnings Per Share
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Q1) 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
Q2) AASB 133 applies to the computation and presentation of earnings per share by:
A) only reporting entities whose shares are publicly traded
B) reporting entities whose shares are publicly traded, or of entities that are in the process of issuing ordinary shares that will be traded in public markets
C) only those entities that are in the process of issuing ordinary shares that will be traded in public markets
D) both reporting and non-reporting entities
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23
Chapter 22: Operating Segments
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Q1) AASB 8 Operating Segments applies to:
I. public companies
II. listed entities
III. entities in the process of listing
IV. any entity who voluntarily chooses to apply it
A) I, II and III only;
B) II, III and IV only;
C) I, II and IV only;
D) I, III and IV only.
Q2) If an entity presents both consolidated financial statements and parent entity financial statements in the same financial report, it must present:
A) segment data only on the basis of the parent entity financial statements;
B) segment data only on the basis of the consolidated financial statements;
C) condensed segment data that includes revenue information only;
D) segment information on the basis of both the consolidated and the parent financial information.
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Chapter 23: Operating Segments
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Q1) An entity is related to a reporting entity if any of the following conditions apply, except:
A) the reporting entity has significant economic dependence on the entity;
B) both entities are joint venture of the same third party;
C) the entity is the subsidiary of the reporting entity;
D) the entity is a post-employment benefit plan for the reporting entity's employees.
Q2) Aladdin is the owner and founder of Genie Limited. Aladdin's wife, Jasmine, has a controlling investment in Jafar Limited. Which of the followings describes the relationship between Genie Limited and Jafar Limited?
A) Genie Limited and Jafar Limited are not related parties.
B) No disclosure about transactions with Jafar Limited is required in the financial statements of Genie Limited.
C) Genie Limited is a related party of Jafar Limited.
D) Genie Limited has control over Jafar Limited.
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Chapter 24: Business Combinations
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Q1) Oliveira Limited estimated that the net present value of future cash flows from Equipment acquired in a business combination is $15 000. The cost of replacing the Equipment is estimated to be $18 000. The Equipment has been independently appraised at a value of $14 000. A similar item of Equipment cost the acquirer $19 000 last year. The fair value at which the Equipment will be recognised when recording the business combination is:
A) $14 000
B) $15 000
C) $18 000
D) $19 000.
Q2) Under AASB 3 Business Combinations, a gain on bargain purchase arises when the acquirer's interest in the fair value of the acquiree's identifiable assets and liabilities is:
A) less than the carrying amount of the net assets acquired
B) less than the consideration transferred
C) greater than the consideration transferred
D) more than the book values of the identifiable assets acquired.
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Chapter 25: Consolidation: Principles and Accounting Requirements
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Q1) Truong Limited acquired 60% of the shares of Quang Limited through the Australian Securities Exchange. The share acquisition cost Truong Limited $500 000. As a result of the share acquisition, Truong Limited gained control over Quang Limited. In its accounting records, Truong will recognise:
A) an investment at a cost of $500 000
B) an investment with a market value of $300 000
C) an increase in share capital of $500 000
D) an increase in share capital of $300 000.
Q2) Which of the following events can cause a change in the pre-acquisition elimination entry
Subsequent to acquisition date?
A) Transfers from post-acquisition retained earnings
B) Dividends paid from pre-acquisition reserves
C) Transfers from pre-acquisition retained earnings
D) Impairment of goodwill
Q3) In a consolidated group of entities, control over the subsidiaries in the group:
A) may not be shared control
B) can be shared with other parties
C) can be less than 100% control
D) can be less than 50% control.
Page 27
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Chapter 26: Consolidation: Intragroup Transactions
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Q1) Winter Limited paid an interim dividend of $5 000 to its parent entity. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction?
I made a change to the original question, as the original question is very similar to Q4.
A) No tax effect entry required.
B) DR Deferred Tax Asset $1 500
C) DR Income Tax Expense $1 500
D) DR Retained Earnings $1 500
Q2) The realisation of the profit or loss on a depreciable asset transferred within the group:
A) is assumed to occur when the future benefits embodied in the asset are consumed by the group.
B) occurs when the asset is sold to an external party.
C) results in an inconsistent pattern with the allocation of depreciation of the asset.
D) is assumed to occur when an external entity becomes directly involved with the asset.
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Chapter 27: Consolidation: Non Controlling Interest
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Q1) Which of the following information relating to the NCI is not required to be disclosed in accordance with the AASB 12 Disclosure of Interests in Other Entities?
A) The proportion of ownership interests held by NCIs.
B) The profit or loss allocated to NCIs of the subsidiary during the reporting period.
C) The total number of shares owned by the NCIs.
D) The name of the subsidiary.
Q2) During the current year, a partly-owned subsidiary has made a transfer from retained earnings to a general reserve. Which of the following lines would appear in the NCI journal relating to the current year transfer?
A) DR NCI
B) DR Retained earnings
C) CR General reserve
D) CR Transfer to general reserve
Q3) A non-controlling interest is a contributor of:
A) equity to a consolidated group;
B) debt to a consolidated group;
C) assets to a consolidated group;
D) profit to a consolidated group.
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Chapter 29: Joint Arrangements
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Q1) When a joint operator is accounting for an interest in joint operation it is required to recognise all of the following in its financial statements: \(\begin{array}{lllll}&I&II&III&IV\\
\text { The assets that it controls } & \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \\
\text { The liabilities that it incurs } & \text { Yes } & \text { Yes } & \text { No } & \text { No } \\
\text { Its share of income from the sale of goods by the } & \text { Yes } & \text { No } & \text { Yes } & \text { No }\\
\text { joint operation }\\
\text { The expenses that it incurs }& \text { Yes }& \text { No }& \text { No }& \text { No } \end{array}\)
A) I;
B) II; C) III; D) IV.
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Chapter 30: Associates and Joint Ventures
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Q1) Codger Limited acquired a 40% investment in Lodger Limited for $50 000. Lodger declared and paid a dividend of $10 000. Codger Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is:
A) \(\begin{array} { l l r }
\text { DR\quad Cash } & \$ 4000 \\
\text { CR\quad Investment in associate } & \$ 4000 ; \end{array}\)
B) \(\text { DR\quad Dividends payable } \quad \$ 4000\)
\(\text { CR\quad Cash } \quad \$ 4000\)
C) \(\begin{array}{llc}
\text { DR } & \text { Cash } & \$ 4000 \\ & \text { CR Dividend revenue } & \$ 4000 ; \end{array}\)
D)DR Investment in associate \(\quad \$ 4000 \) CR Dividend revenue \( \quad \$ 4000 \).
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