Introduction to Accounting Pre-Test
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Course Introduction
Introduction to Accounting offers students an essential foundation in the principles and practices of financial accounting. The course explores the fundamental accounting cycle, including the recording, summarizing, and interpretation of financial transactions for business organizations. Topics covered include the preparation and analysis of key financial statements such as the balance sheet, income statement, and statement of cash flows, as well as the role of ethics in accounting. Students will gain an understanding of how accounting information is used by stakeholders to make informed business decisions, setting the stage for more advanced study in the field.
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) If there is a conflict between the provisions of the statements of accounting concepts and the requirements of the accounting standards:
A) the accounting standards prevail
B) the accounts must contain a note on the conflict
C) the AASB must rule on the conflict
D) the statements of accounting concepts prevail
Answer: A
Q2) 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
Q3) 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
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) A major beneficiary from the development of a conceptual framework is expected to be:
A) governments
B) preparers of financial reports
C) accounting standard setters
D) managers
Answer: C
Q2) Which of these is a constraint on financial reporting rather than a qualitative characteristic?
A) Relevance
B) Comparability
C) Timeliness
D) Reliability
Answer: C
Q3) The first Australian study on the objective of financial reporting was by:
A) Kenley and Staubus
B) Sprouse and Moonitz
C) Chambers
D) Paton and Littleton
Answer: C
Page 4
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) 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
Q2) Explain and discuss three essential characteristics of an asset as defined by the Framework.
Answer: Not Answer
Q3) Depreciation and wages that have been accrued represent,respectively,expenses resulting from:
A) a decrease in an asset: a decrease in a liability
B) the using up of an asset: an increase in a liability
C) the using up of a liability: an increase in an asset
D) none of the above
Answer: B
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Page 5
Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) In the Framework,'probable' means:
A) greater than 50% certainty
B) 50% certainty
C) greater than 75% certainty
D) greater than 95% certainty
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) Which of these is not a difference between the contract-price method and the internal-yield method of valuing liabilities?
A) Ease/difficulty of calculation
B) Treatment of the time value of money
C) Reliance on historical cost information
D) Treatment of the interest obligation
Q4) Discuss the advantages and disadvantages associated with the use of the contract-price method of measuring liabilities.
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Chapter 5: The Choice of Accounting Methods
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Q1) An example of legal form not reflecting economic substance is:
A) a legal document describing an accounts receivable as a debtor
B) a legal document describing a loan as an advance
C) a legal document describing a transaction as a lease when in fact it is a credit sale
D) all are examples of legal form not reflecting economic substance
Q2) 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
Q3) In agency relationships between owners,managers and debt-holders,it can normally be assumed,in relation to debt contracts,that:
A) Managers will align their interests with those of debt-holders
B) Debt-holders will align their interests with those of owners
C) Managers will align their interests with those of owners
D) None of the above
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Chapter 6: The Balance Sheet: an Overview
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Q1) Identify and discuss the requirements concerning the classification of assets contained in AASB 101.
Q2) 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
Q3) Internally generated tangible assets:
A) are valued at their cost of manufacture or construction
B) are not subject to the impairment test
C) include patents trademarks and brand names
D) all of the above
Q4) 'Disclosure of information about the financial position of the reporting entity involves disclosure of information about its control over resources,financial structure,capacity for adaptation and solvency.' SAC2 para 32.
Explain and discuss this statement.
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Chapter 7: Accounting for Current Assets
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Q1) 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
Q2) Two approaches to determining the number of units of inventory on hand are:
A) periodic, physical
B) lower of cost and net realisable value
C) FIFO, weighted average
D) periodic, perpetual
Q3) Discuss the disclosures relating to inventory required by AASB 102.Include a discussion on the disclosures required by not-for-profit entities.
Q4) When merchandise is in transit on balance date and has been shipped FOB destination,it should be included in the inventory of:
A) the buyer
B) the seller
C) the carrier
D) it does not need to be included in any parties' inventory
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) 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
Q2) AASB 136 requires that assets are carried at no more than their recoverable amount.Outline the accounting treatment required to recognise an impairment loss.In your answer discuss the subsequent reversal of an impairment loss.
Q3) What is the meaning of the word 'depreciation' in contemporary accounting?
A) An allocation of cost
B) A physical deterioration
C) A fall in price
D) A fall in value
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) 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
Q2) AASB 112 requires that:
A) current and deferred tax expense are reported as one figure 'income tax expense'
B) current and deferred tax expense are disclosed separately
C) deferred tax expense is not identifiable in the financial reports
D) current tax expense is not identifiable in the financial reports
Q3) Compare and contrast the Tax Payable and Tax Allocation - Balance Sheet Approach methods of accounting for income tax.Which method is required under Australian Accounting Standards? Outline the main arguments for and against each of these methods.
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Chapter 10: Accounting for Investments
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Q1) Under AASB 128,the quantitative test that normally raises a presumption of significant influence is:
A) holding 15% or more of the voting power in an investee
B) holding 25% or more of the voting power in an investee
C) owning 25% or more of the shares in an investee
D) holding 20% or more of the voting power in an investee
Q2) When the existence of a subsidiary is established:
A) equity financial statements must be prepared
B) joint venture financial statements must be prepared
C) consolidated financial statements must be prepared
D) none of the above is necessary
Q3) The hybrid equity method differs from the pure equity method in that:
A) goodwill is not amortised
B) the goodwill component of the purchase price is not shown in a separate account from the investment
C) investee revaluations are regarded as adjustments to equity rather than as income
D) both B and C
Q4) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
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Chapter 11: Accounting for Intangible Assets
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Q1) 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
Q2) The initial recognition of the costs associated with intangible assets as an asset rather than an expense:
A) is consistent with the treatment of these costs for income tax purposes
B) is allowable provided that a future economic benefit exists
C) is allowable provided that the cost is material
D) all of the above
Q3) 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
Q4) Explain and discuss the application of AASB 138 in its proposals to account for research and development expenditure.
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Page 13
Chapter 12: Accounting for Leases
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Q1) How is a finance lease distinguished from an operating lease? Give an explanation of the meaning and significance of any technical terms used in your answer.
Q2) A sale of goods under a hire-purchase agreement is usually treated by accountants as a sale when the agreement is signed because:
A) the goods are physically transferred to the buyer when the agreement is signed
B) hire-purchase agreements are usually for a 12-month term
C) accountants are more interested in the economic substance of a transaction than in its legal form
D) ownership of the goods passes to the buyer when the agreement is signed
Q3) (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.
Q4) 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) Slater is entitled to 4 weeks annual leave a year and has four weeks leave,to the value of $20 000,accrued at the end of his first year of employment.On the first day of his second year of service Slater is given a pay rise to bring his salary up to $300 000 per annum.After the pay rise,Slater's annual leave payable must be adjusted by:
A) $50 000
B) $3077
C) $23 077
D) No adjustment is necessary
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) Which of the following statements is correct?
A) The writer (seller) of a call option on shares receives a fee from the buyer of the option
B) The writer (seller) of a call option on shares may or may not have to sell the shares to the buyer of the option
C) The writer (seller) of a call option on shares has an obligation to sell the shares at a future time to the buyer of the option
D) All of the above are correct
Q2) A trader purchases 4 futures contracts with a total value of $100 when the price of the contracts (based on the SPI 200 share price index)is 3026.When these contracts expire,the index itself is at 2950 points and the price of the SPI 200 contract units is 2975.The trader has:
A) made a gain of $5100
B) made a loss of $5100
C) made a loss of $2550
D) made a gain of $2550
Q3) Identify and explain the methods required under AASB 139 to account for a futures contract both at its inception and for subsequent changes in its fair value.
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Page 16
Chapter 15: Equity
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Q1) A reason why a company might wish to buy back its own shares is:
A) to decrease its debt to equity ratio
B) to protect its creditors
C) to use funds to benefit shareholders where there are insufficient profitable investment opportunities
D) all of the above
Q2) Explain the nature of compound financial instruments and how to account for them in Australia.
Q3) AASB 101 requires disclosure relating to:
A) the par value of shares
B) whether shares have no par value
C) the number of shares issued
D) all of the above
Q4) 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
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Chapter 16: The Income Statement
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Q1) The correct statement is:
A) Current Australian accounting standards do not identify any particular categories of 'unusual' items for special disclosure in the income statement
B) Current Australian accounting standards require activities that are attributable to transactions or other events outside the ordinary activities of the entity to be disclosed separately
C) AASB 101 requires the separate disclosure of significant items
D) None of the above is correct
Q2) Under AASB 118,which of the following is additional recognition requirements that must be met before revenue arising from the sale of goods can be recognised?
A) The significant risks and rewards of ownership must have been transferred to the buyer
B) The entity retains neither continued managerial involvement to the degree usually associated with ownership nor effective control over the goods sold
C) The costs in respect of the transaction can be measured reliably
D) All of the above
Q3) Define income and explain how it differs from revenue.
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Chapter 17: The Cash Flow Statement
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Q1) 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
Q2) Discuss the concept of cash and cash equivalents.Provide examples to illustrate your answer.
Q3) In the cash flow statement,net cash flows from operating activities plus net cash flows from investing activities plus net cash flows from financing activities for the period equal:
A) the cash balances at the beginning of the period
B) net profit
C) the cash balances at the end of the period
D) the total net increase or decrease in cash held for the period
Q4) All of these are possible definitions of 'funds' except:
A) working capital
B) investment
C) total resources
D) cash
Page 19
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Chapter 18: Financial Reporting: Segment Reporting, value
Added Statements, highlights Statements and
Financial Information
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Q1) Reporting by segments of a business is believed to have a number of advantages.Which of the following is not likely to be such an advantage?
A) Allowing better assessment of expected returns from and risks of investing
B) Preventing management from hiding failures in decision making
C) Increasing the net profit of a business
D) Improving investors' decision making
Q2) AASB 8 'Operating Segments' requires entities to report:
A) segments that correspond to internal management reports
B) segment information that is more consistent with other parts of their annual reports
C) more segment information in their interim financial statements
D) all of the above
Q3) Explain and illustrate,with simple examples,both the usefulness and any possible dangers in using the:
rate-of-return on total assets ratio
rate-of-return on equity ratio
times dividends earned ratio
Why are these described as 'efficiency ratios'?
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) 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) 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
Q3) Why have accountants always put so much emphasis on the concept of materiality? How does this concept affect accountants,if at all,in their day-to-day work and in the preparation of periodical financial reports?
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Chapter 20: Accounting for the Extractive Industries
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Q1) Which of the following statements is correct? The expense (costs written-off)method of accounting for exploration and evaluation costs in the extractive industries:
A) is inconsistent with the framework of accounting
B) is likely to be accepted for income tax purposes
C) is simple and conservative
D) all of the above are correct
Q2) Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources defines 'economically recoverable reserves' of minerals,oil or gas as those which can be expected to be profitably:
A) extracted and sold under current and foreseeable economic conditions
B) extracted, processed and sold under current and foreseeable economic conditions
C) extracted, processed and sold under foreseeable economic conditions
D) processed and sold under current economic conditions
Q3) 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.
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Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) Real estate assets owned by a business should be classified:
A) as inventories
B) as either inventories or non-current assets depending on the purpose(s) for which they are held
C) in a separate classification for real estate only
D) as non-current assets
Q2) 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
Q3) Compare and contrast the two types of contract distinguished by AASB 111,and provide an example of each.
Q4) Explain the accounting procedure that should apply when a construction contract is expected to be completed at a loss.Use a simple numerical example to illustrate this procedure.How is this procedure affected if the completed-contract method is used for accounting for construction contracts rather than the percentage-of-completion method?
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Chapter 22: Accounting for Agricultural Activity
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Q1) The accounting treatment of government grants under AASB 141 requires that:
A) unconditional grants are to be treated as non-current assets when they become receivable
B) unconditional grants are to be treated as income when they become receivable
C) unconditional grants are to be treated as income
D) none of the above
Q2) 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?
Q3) Describe the sustained-yield method and the standard method of measuring forestry assets.
Q4) Agricultural assets that are plants or trees are most appropriately measured for accounting purposes at:
A) net realisable value
B) replacement cost
C) net present value
D) historical cost
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24
Chapter 23: Accounting for Superannuation Plans
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Q1) The trustees of a superannuation fund can transfer their responsibility for the general conduct of the fund:
A) if it is non-contributory
B) if it provides portable benefits
C) if the fund is externally managed
D) in none of the above cases
Q2) The definition of the accrued benefits of the members of a superannuation plan as 'the present value of expected future payments arising from membership of the plan up to the measurement date' is relevant for:
A) externally managed plans
B) all superannuation plans
C) defined benefit plans
D) defined contribution plans
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
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Chapter 24: Accounting for Financial Institutions
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Q1) Under AASB 4 'Insurance Contracts' the insurer at each reporting date must determine whether its insurance liabilities are understated; if they are,the amount should:
A) be recorded a liability
B) be charged as an expense
C) be disclosed in the notes
D) be disclosed as a provision
Q2) The date when earning the premium for a general insurance policy begins should normally be taken as the date when:
A) the insurer accepts the risk, the attachment date
B) a cover note is issued
C) the premium is paid in full by the insured
D) the policy is signed by both parties
Q3) 'Underwriting' by an insurer involves:
A) assessment of risks
B) settling claims
C) collection of premiums on insurance policies
D) all of the above
Q4) 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 current differences between Government Finance Statistics (GFS)and Generally Accepted Accounting Principles (GAAP)reporting,except:
A) GPS has two performance statements whereas GAAP has only one statement of financial performance
B) GPS requires all borrowing costs to be recognised as expenses whereas GAAP, in some circumstances, allows them to be capitalised
C) GFS only recognises bad debts when they are written off and does not recognise expenses arising from establishing a provision for doubtful debts, whereas GAAP recognises expenses arising from establishing a provision for doubtful debts
D) Accrual accounting only applies to GAAP not to GFS
Q2) The main issues relating to the recognition of land under roads include:
A) uncertainty about which entities control land under roads
B) there is no recognised method for reliably measuring land under roads
C) there is no direct economic benefits associated with land under roads
D) all of the above
Q3) Compare government financial statistics with the general purpose GAAP reporting models.
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) The International Accounting Standards Board is:
A) an independent private sector body located in the United Kingdom
B) a joint body set up by the International Accounting Standards Committee and the International Organisation of Securities Commissions
C) a joint body established by the International Accounting Standards Committee and the United States Securities and Exchange Commission
D) based in London and is an agency of the United Kingdom government
Q2) International accounting standards are applicable:
A) only to for-profit entities in the private sector
B) to for-profit and not-for-profit entities and government business enterprises
C) to for-profit and not-for-profit entities but not to government business enterprises
D) to for-profit entities including government business enterprises
Q3) Describe and explain the strategies adopted by the AASB in order to achieve the objective of international harmonisation of accounting standards in Australia.
Q4) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
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Chapter 27: Foreign Currency Translation
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Q1) Which of the following best describes the requirements under Australian Accounting Standard AASB 139?
A) All financial instruments are accounted for using hedge accounting
B) Hedging arrangements must meet certain requirements before hedge accounting can be applied
C) Financial instruments must meet certain requirements before hedge accounting can be applied
D) All hedging arrangements are accounted for using the general principles of accounting for financial instruments
Q2) Explain,using simple numerical example(s),how hedging a foreign currency transaction can remove uncertainty about the outcome of the transaction.Based on the same example(s),illustrate both how hedging can prevent a business from incurring a loss because of movements in exchange rates and also how it can cause a business to miss out on a potential gain from such movements.
Q3) There are four methods suggested for translating foreign currency financial statements.Identify these four methods and explain the translation methods used under each.
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Chapter 28: Accounting for Corporate Social Responsibilities
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21 Verified Questions
21 Flashcards
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Sample Questions
Q1) When an entity's net emissions are less than the permits they hold,at the end of the year they:
A) must forfeit the excess credits
B) can sell the excess credits to other entities
C) can bank the excess credits for future use
D) B and C above
Q2) The quantitative reporting of a company's socially responsible activities may not be especially useful because:
A) there can be difficulty in allocating cost accurately to different activities
B) it provides no indication of the effectiveness of the expenditure incurred
C) much of the expenditure incurred may simply be the result of complying with legal requirements or enforcement action by government authorities
D) all of the above
Q3) Triple-bottom line reporting involves giving information on a company's:
A) economic, environmental, and social activities
B) economic, voluntary, and human rights activities
C) environmental, social, and community activities
D) environmental, social, and political activities
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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) The formal disciplinary proceedings of the major Australian professional accounting bodies are conducted 'in camera',which means:
A) details of the matters are never made public
B) details of the matters are not usually made public
C) the Disciplinary Committee is concerned only with breaches of the code of ethics
D) a member may not have a legal advisor present during the proceedings
Q2) Briefly describe the classes of teleological theories that have been used to examine ethical behaviour.
Q3) 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
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