Professional Accounting
Final Test Solutions
Course Introduction
Professional Accounting is designed to equip students with a comprehensive understanding of the principles, practices, and ethical standards that govern the accounting profession. The course covers key topics such as financial accounting, management accounting, auditing, taxation, and accounting information systems. Students will develop skills in preparing and analyzing financial statements, evaluating internal controls, and interpreting financial data to support business decision-making. Emphasis is placed on the application of accounting standards, regulatory frameworks, and professional ethics, preparing graduates for roles in public accounting, corporate finance, or further professional certification.
Recommended Textbook
Australian Financial Accounting 7th Edition by Craig Deegan
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Page 2
Chapter 1: An Overview of the Australian External Reporting Environment
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Q1) The Australian Securities and Investment Commission (ASIC)has the responsibility,among other things,to monitor and regulate various investment products and superannuation.
A)True
B)False
Answer: True
Q2) The AASB Standards 1-99 Series includes those standards:
A) where the standard has been developed for domestic application and relates specifically to the public or not-for-profit sectors.
B) where a standard equivalent to an existing or improved IAS is issued, with the number being used by the IASB being the same as that being used by the AASB (e.g. IAS 1 will be AASB 1).
C) where a standard equivalent to an existing or improved IAS is issued, with the number being used by the AASB 100 on from that being used by the IASB(e.g. IAS 1 will be AASB 101).
D) where a new IFRS has been issued by the IASB, with the number being used by the IASB being the same as that being used by the AASB(e.g. IFRS 1 will be AASB 1).
Answer: D
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance
to Financial Reporting
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Q1) In accordance with IASB Conceptual Framework which of the following is consistent with the definition of expenses?
A) decreases in economic benefits during the accounting period in the form of outflows other than those relating to distributions to equity participants
B) increases in economic benefits during the accounting period in the form of inflows or enhancement of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
C) decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
D) All of the given answers are correct.
Answer: C
Q2) The recognition criteria for liabilities are consistent with those for assets.
A)True
B)False
Answer: True
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4
Chapter 3: Theories of Accounting
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Q1) Using the PAT perspective of managers' behaviour,the effect of paying managers a fixed income salary is that:
A) They will feel secure enough to accept risky projects for the organisation.
B) They will prefer not to have the organisation take on debt.
C) They will be free to consider the optimal investment options for the organisation from the perspective of the principals.
D) They will feel secure enough to accept risky projects for the organisation and they will be free to consider the optimal investment options for the organisation from the perspective of the principals.
Answer: B
Q2) Which of the following are examples of categories of the main normative accounting theories that were developed in the 1950s and 1960s?
A) current-cost accounting and conservatism
B) critical theory and opportunity-cost accounting
C) ABC costing and historical-cost accounting
D) deprival-value accounting and exit-price accounting
Answer: D
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Chapter 4: An Overview of Accounting for Assets
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Sample Questions
Q1) Which of the following measurement bases are acceptable for property,plant and equipment?
A) historical cost
B) revaluation model
C) fair value model
D) historical cost and revaluation model
Q2) AASB 108 Accounting Policies,Changes in Accounting Estimates and Errors specifies the accounting treatment for changes in accounting policies,correction of errors and changes in accounting estimates.Which of the following statement(s)in relation to these items is/are true?
A) Prior period errors are to be corrected by restating prior period information.
B) Voluntary changes in accounting policy are to be accounted for prospectively.
C) Changes in accounting estimates are to be accounted for retrospectively, unless it is impracticable to do so.
D) A change in the useful life of an asset is considered a change in accounting policy.
Q3) The opportunistic view under PAT predicts managers to prefer capitalisation over expensing.Discuss.
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Chapter 5: Depreciation of Property, plant and Equipment
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Q1) French Co Ltd has a machine with the following characteristics: A more technically advanced machine is expected to be available in 8 years. It is expected to continue operating efficiently for the next 13 years. The product that the machine is used to produce is expected to have a viable market for the next 6 years.
What is the period of time that should be used as the useful life of the asset for the purpose of calculating depreciation?
A) 8 years
B) 6 years
C) 13 years
D) 9 years
Q2) Amortisation has the same meaning as depreciation,but conventionally is used in relation to intangible assets.
A)True
B)False
Q3) How are gains or losses on sale of depreciable assets accounted for in accordance with AASB 118 Revenue?
Q4) In accordance with AASB 116,how should a company treat additions,major repairs and improvements and replacements?
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Chapter 6: Revaluations and Impairment Testing of
Non-Current Assets
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Q1) AASB 116 prescribes that,if assets within the same class are revalued and some assets increased in value while others decreased in value:
A) the net decrement for the class of asset should be recognised as loss in the income statement.
B) the net increment for the class of asset should be credited to revaluation reserve.
C) the total increment for all assets in the same class that increased in value should be credited to revaluation reserve and total decrement for all assets in the same class of asset should be recognised as loss in the income statement.
D) All of the given answers are correct.
Q2) If an asset is subject to depreciation or amortization there is no longer a need to test the asset for impairment.
A)True
B)False
Q3) Explain why discounting future cash flows will have direct implications for the calculated value of the recoverable amount.
Q4) Differentiate depreciation expense from impairment loss.
Q5) Discuss the process for the reversal of revaluation decrements and increments.
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Chapter 7: Inventory
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Q1) The cost of sub-contracted work is not included in costs of conversion for the purposes of calculating the cost of inventory.
A)True
B)False
Q2) The cost of inventory is defined by AASB 102 as including:
A) the cost of purchase and conversion.
B) duties and taxes on purchase of goods or services for sale.
C) the cost incurred in the normal course of operations to bring the inventories to their present location and condition.
D) all of the given answers.
Q3) The cost-flow assumption selected for inventory costing purposes should always reflect the physical flow of goods out of inventory.
A)True
B)False
Q4) Some biological assets may be covered by AASB 102 Inventories.
A)True
B)False
Q5) Discuss when a standard cost may be used to arrive at the cost of inventory.
Q6) Identify and discuss the items included as inventory cost.
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Chapter 8: Accounting for Intangibles
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Q1) An intangible asset with a finite useful life can be amortised when:
A) the asset has been purchased.
B) the asset is available for use.
C) the asset is derecognised.
D) None of the given answers are correct.
Q2) Purchased goodwill is recognised as the amount of:
A) the excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets acquired.
B) the difference between the cost of acquisition of a subsidiary and the realisable value of net assets of the subsidiary.
C) the lower of the sum of related expenditures on advertising and promotion undertaken in the last 2 years by the subsidiary being purchased and the independent valuation of the market value of that subsidiary's goodwill.
D) the excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets and contingent liabilities acquired.
Q3) Goodwill is a term used for the composite asset of identifiable intangibles.
A)True
B)False
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Chapter 9: Accounting for Heritage Assets and Biological Assets
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Q1) Roberts,Staunton and Hagen (1995)propose that biological assets be subject to a classification scheme that differs from other assets.This scheme would require:
A) biological assets to be grouped into one category and then subdivided into current and non-current groups.
B) the intent of management to be stated at acquisition date so that the assets can be properly classified.
C) these types of assets to be shown in a separate category of 'biological assets' and identified by subcategories.
D) notes to be included in the accounts clearly identifying why a biological asset had been classified.
Q2) AASB 141 prohibits the classification of biological assets as current or non-current.
A)True
B)False
Q3) AASB 141 requires biological assets to be separately classified between 'plant' and 'animals'.
A)True
B)False
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Page 11
Chapter 10: An Overview of Accounting for Liabilities
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Q1) Executory contracts are within the scope of AASB 137 Provisions,Contingent Liabilities and Contingent Assets.
A)True
B)False
Q2) Unless the probability of any outflow in a settlement is remote,an entity needs to disclose for each class of contingent liability:
A) the possibility of any reimbursement.
B) an indication of the timing and amount uncertainties.
C) an estimate of its financial effect.
D) All of the given answers must be disclosed.
Q3) Explain,in the context of the latest AASB 137,why 'provisions' for items such as future repairs and maintenance are no longer permitted to be recognised.
Q4) Explain,providing an example,the 'effective-interest method' used to amortise debenture discount and debenture premium accounts.What is the implication of using this method for the balance of the net liability throughout the debenture term?
Q5) In terms of accounting treatment debentures and bonds are the same thing.
A)True B)False
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Chapter 11: Accounting for Leases
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Q1) Discuss the issues raised by the IASB and the US FASB on the accounting treatment for operating leases and how this arrangement gives rise to an asset and a liability to the lessee at inception of the lease.
Q2) A lease involving land and buildings:
A) must be recorded as an operating lease as land has an indefinite life.
B) requires two separate leases to be recorded, one for the land and another for the building.
C) will still require a determination to be made as to whether the lease constitutes a finance or operating lease.
D) requires the minimum lease repayments to be split evenly between the land and buildings.
Q3) If a lease transfers ownership of the property to the lessee,or contains a bargain purchase option,then this is consistent with the lease being an operating lease. A)True B)False
Q4) Discuss how entities with debt-to-asset constraints are affected by the classification of leases as either finance or operating leases.What are the implications for lease accounting?
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Page 13
Chapter 12: Accounting for Employee Benefits
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Q1) Employees generally receive superannuation entitlements as part of their employment agreements.This usually involves the employer transferring funds to an independent superannuation fund that is administered by an independent trustee.
A)True
B)False
Q2) Any employee benefit that is incurred by the employer during the period and that contributes to the generation of items expected to provide future economic benefits for the employer may be capitalised as an asset.
A)True
B)False
Q3) In relation to required disclosures,AASB 119 requires an entity to disclose the amount recognised as an expense for defined contribution plans.
A)True
B)False
Q4) There is uncertainty involved in long-service leave obligations of employers especially in the early years of employee service.Discuss how the criteria for recognition of a liability are satisfied in the case of long-service leave obligations.
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14
Chapter 13: Share Capital and Reserves
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Q1) If a company has created a forfeited shares reserve,this means that:
A) The company is not a member of the Australian Stock Exchange and its constitution does not require it to refund amounts already paid by defaulting investors.
B) The company is expecting that the amounts unpaid will be collected in the next period.
C) The company is a member of the Australian Stock Exchange and is required to refund amounts already paid by defaulting investors.
D) The company is holding the amounts already paid by defaulting investors in trust in order to repay them on the request of the investor.
Q2) Preference shares may be classified as a liability,an equity item,or have features of both.Explain with examples,how to determine such a classification.
Q3) The term 'reserves' in the statement of financial position is used to identify:
A) a decline in the fair value of a non-current asset.
B) an amount of retained earnings that is allocated for a specific purpose.
C) the allowance for uncollectible receivables.
D) an amount that is being accumulated to reduce the financial effect of a litigation lawsuit.
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Chapter 14: Accounting for Financial Instruments
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Q1) Once a financial instrument has been classified as a liability in the statement of financial position,under AASB 132 the reporting entity is not permitted to reclassify it unless a specific transaction or other specific action by the holder or issuer of the instrument alters the substance of the financial instrument.
A)True
B)False
Q2) Explain the reason for the rise in the development and use of financial instruments in recent years.Describe some of the key accounting issues regulators have had to face in light of this increased use and development.
Q3) When financial instruments are issued that are to appear in the statement of financial position the issuer is required to determine whether the item should be disclosed as a liability or as equity.
A)True
B)False
Q4) Compound instruments contain both a financial liability and equity component but exclude convertible notes.
A)True
B)False
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Chapter 15: Revenue Recognition Issues
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Q1) Gains must be reported net of related expenses.
A)True
B)False
Q2) Using the cost method to calculate the percentage of completion,the formula for the current period revenue or gross profit to be recognised is:
A) costs incurred to the end of the current period divided by most recent estimate of total costs.
B) estimated total revenue or gross profit from the contract multiplied by (costs incurred to the end of the current period divided by most recent estimate of total costs) less (total revenue or gross profit recognised in prior periods).
C) costs incurred to the end of the current period divided by most recent estimate of total costs multiplied by (total revenue or gross profit recognised in prior periods).
D) estimated total revenue or gross profit from the contract divided by (costs incurred to the end of the current period multiplied by most recent estimate of total costs) less (total revenue or gross profit recognised in prior periods).
Q3) In accordance with IASB (2011)discuss the five steps to recognising revenue.
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Chapter 16: The Statement of Comprehensive Income and Statement of Changes in Equity
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Q1) Which of the following would not be considered a 'prior period error' for the purposes of AASB 108?
A) mathematical mistakes
B) fraud
C) misinterpretations of fact
D) none of the given answers
Q2) Reports in the financial press that a particular company reported healthy profits despite increased wage costs are indicative of:
A) the negative impact of reporting payments to employees as expenses while payments to owners are treated as distributions of profits.
B) the implied emphasis on the returns to owners being good and returns to other stakeholders such as employees as being bad.
C) the effect of reporting employees as expenses and not reporting the social costs of unemployment on decisions to restructure companies to reduce the workforce.
D) all of the given answers.
Q3) How does AASB 101 define 'extraordinary items'? Discuss the current arrangements for accounting for such items.
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Page 18
Chapter 17: Accounting for Share-Based Payments
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Q1) In a share-based payment transaction like an option,vesting date is:
A) grant date.
B) expiry date of option.
C) date when all vesting conditions are satisfied.
D) balance date.
Q2) AASB 2 requires that goods and services received in an equity-settled share-based transaction be measured in reference to fair value of equity instruments granted.
A)True
B)False
Q3) Which of the following items are considered cash-settled share-based payment transactions within the scope of AASB 2?
A) An entity grants 200 share options to all employees.
B) An entity grants 200 share options to all employees but requires employees to work at least 3 years.
C) An entity acquires a piece of equipment from another entity in exchange for shares of the entity.
D) An entity issues share appreciation rights to its employees.
Q4) Briefly describe the keys points of AASB 2.
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Chapter 18: Accounting for Income Taxes
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Q1) The amount of tax assessed by the ATO based on the entity's operations for the period will be reflected in which account?
A) income tax expense
B) deferred income tax
C) deferred tax liability
D) income tax payable
Q2) The tax figure calculated and recorded on the statement of comprehensive income is an accurate reflection of the entity's tax liability for the stated period.
A)True
B)False
Q3) Discuss the criteria for recognising deferred tax assets when there are unused tax losses?
Q4) A deferred tax asset arises if:
A) the carrying amount of an asset is greater than its tax base
B) the carrying amount of a liability is greater than its tax base
C) the carrying amount of a liability is less than its tax base
D) the carrying amount of an asset is greater than its tax base and the carrying amount of a liability is less than its tax base
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Chapter 19: The Statement of Cash Flows
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Q1) Investing activities are defined by AASB 107 as those that:
A) relate to the changing size or composition of the capital management structure of the entity.
B) relate to the acquisition or disposal of inventory.
C) relate to the acquisition and/or disposal of non-current assets and other investments not included in cash equivalents.
D) relate to changes in capital or liabilities used to fund long-term assets.
Q2) The statement of cash flows may assist in determining the ability of an entity to:
A) generate cash flows.
B) obtain internal finance.
C) meet its financial commitments to customers.
D) generate cash flows and meet its financial commitments to customers.
Q3) In accordance with AASB 107 Statement of Cash Flows,a bonus share issue is to be classified under financing activities.
A)True
B)False
Q4) Explain why AASB 107 requires disclosures to be made about non-cash financing and investing activities.
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Chapter 20: Accounting for the Extractive Industries
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Q1) Factors to be considered in reassessing the estimate of recoverable reserves each year include:
A) the past production rate compared to total estimated reserves.
B) the possibility that technological developments or discoveries may make the product obsolete or uneconomical at some future time.
C) changes in technology, market or economic conditions affecting either sales prices or production costs, with a consequent impact on cut-off grades.
D) the possibility that technological developments or discoveries may make the product obsolete or uneconomical at some future time and changes in technology, market or economic conditions affecting either sales prices or production costs, with a consequent impact on cut-off grades.
Q2) AASB 6 requires deferred evaluation and exploration costs to be assessed for impairment when there is reason to suspect that the carrying amount may exceed its recoverable amount.
A)True
B)False
Q3) Discuss the recognition of revenue for the extractive industries.
Q4) Discuss how an entity accounts for restoration costs and the measurement used.
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Page 22
Chapter 21: Accounting for General Insurance Contracts
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Q1) Danger Ltd writes insurance policies to cover the risk of theft in central Brisbane.The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates.Danger Ltd is aware that the risk of theft is 20 times higher in March and 15 times higher in July than in the other months of the year.The appropriate discount rate for Danger Ltd is 15%.If the total amount of insurance premiums to be received is $1 000 000,what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar)?
A) $72 467 per month
B) $200 000 in March, $150 000 in July, $54 167 in each other month
C) $83 333 per month.
D) $444 444 in March, $333 333 in July and $22 222 in each other month
Q2) What aspects of the current version of AASB 1023 will still give rise to earnings/price volatility that was dreaded by the industry when AASB 1023 was first introduced?
Q3) An insurer is not required to disclose its objectives,policies and processes for managing risks arising from insurance contracts.
A)True
B)False
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Page 23
Chapter 22: Accounting for Superannuation Plans
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Q1) AAS 25 Financial Reporting by Superannuation Plans deals with accounting in an employer's financial reports for employee entitlements,including retirement benefits.
A)True
B)False
Q2) Discuss why the Australian Accounting Standards Board decided not to adopt IAS 26 Accounting and Reporting by Retirement Benefit Plans.
Q3) A superannuation plan is defined in AAS 25 as an arrangement whereby it is agreed between trustees and employers,employees or self-employed persons,that benefits be provided upon the retirement of plan members or upon their resignation,death,disablement or other specified events.
A)True
B)False
Q4) Superannuation funds are monitored and regulated by the Australian Vigilance Regulation Authority and the Australian Securities and Investments Commission. A)True B)False
Q5) Discuss the options available for defined benefit superannuation plans.
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Chapter 23: Events Occurring After the End of the Reporting Period
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Q1) Gowanland Co Ltd is being sued over damage to farmland as a result of an accident in which poisonous chemicals were mixed with fertiliser.At reporting date there was no information about the court decision and a contingent liability had been disclosed.Subsequent to the reporting date,the court handed down its decision and upheld a substantial claim for damages.According to AASB 110 how should this event be treated in the financial statements?
A) The contingent liability note should be extended to provide additional information based on the after-reporting-date event.
B) The contingent liability note should remain as it is because it reflects the situation existing at reporting date.
C) The contingent liability can now be measured reliably and is no longer contingent, so it should be recognised in the financial statements as a provision.
D) The treatment would depend on whether or not the entity had received advice from solicitors regarding the likely success of an appeal.
Q2) Reporting date may occur 2 or 3 months after reporting date.
A)True
B)False
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Page 25
Chapter 24: Segment Reporting
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Q1) The guidelines for determining that a segment is reportable in accordance with AASB 8 include:
A) Its segment result, whether a profit or loss, is 10 per cent or more of the combined result of all segments that earned a profit or the combined result of all segments that incurred a loss, whichever is the greater absolute amount.
B) Its segment result, if a profit, is 10 per cent or more of the combined result of all segments that made a profit, or if the segment made a loss, its loss is 10 per cent or more of the absolute amount of the total segment losses.
C) Its segment result, whether a profit or loss, is 10 per cent or more of the absolute value of the combined results of all segments.
D) Its segment result, whether a profit or loss, is 10 per cent or more of the combined result of all segments that earned a profit or the combined result of all segments that incurred a loss, whichever is the lesser absolute amount.
Q2) Explain the reconciliation information AASB 8 requires for segment reporting.
Q3) Discuss the entity-wide disclosures in AASB 8 that need to been made about major customers.
Q4) Discuss the reasons for the release of IFRS 8.
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Chapter 25: Related Party Disclosures
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Q1) Significant influence is defined in AASB 124 as:
A) a majority ownership relationship such that the parent entity is able to dominate the decision making of the other entity.
B) the exercised ability to materially affect the financial and operational decisions of another entity.
C) the influence that is attached to owning a parcel of shares or other equity instruments of another entity.
D) the power to participate in the financial and operating policy decisions of an entity, but not the control over those policies.
Q2) Disclosure information under AASB 124 is aggregated by:
A) forex currency base, size of the transaction and class of related party.
B) size of the transaction, type of transaction and frequency of the transaction.
C) type of transaction, nature of terms and conditions and class of related party.
D) nature of terms and conditions, class of related party and frequency of the transaction.
Q3) Discuss the objective of AASB 124 Related Party Disclosures.
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Chapter 26: Earnings Per Share
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Q1) Flagstaff Ltd has the following potentially diluting securities outstanding for the year ended 30 June 2014:
$200 000,6.5%,convertible note (10 000 ordinary shares)
$200 000,6.5%,convertible preference shares (10 000 ordinary shares)
10 000 employee options convertible to one ordinary share (exercise price $2.50; average market price during the year was $2.70)
50 000 executive options convertible to one ordinary share (exercise price $4.50)
Basic EPS for the year ended 30 June 2014 is calculated at $1.20 per share. Rank the above securities in the order of most dilutive to least dilutive potential ordinary shares that is in accordance with AASB 133
A) executive options, employee options, convertible preference shares, convertible notes
B) executive options, employee options, convertible notes, convertible preference shares
C) employee options, convertible notes
D) employee options, convertible notes, convertible preference shares
Q2) What are the effects of discontinued operations in the reporting of earnings per share?
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28
Chapter 27: Accounting for Group Structures
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Q1) The lack of a direct link between levels of ownership and control (i.e.the degree of ownership does not,of itself,determine if an entity has control of another):
A) is consistent with the AASB Framework's definition of assets, which relies on control and not legal ownership.
B) is consistent with the AASB Framework's definition of assets, which relies on legal ownership and not control.
C) is consistent with the AASB Framework's definition of equity, which recognises investments in other entities.
D) is consistent with the AASB Framework's definition of equity, which relies on control and not legal ownership.
Q2) In the consolidated financial statements of the parent entity and its controlled entities only transactions with assets and liabilities relating to parties external to the economic entity will be reflected.
A)True
B)False
Q3) Briefly outline the steps taken in order that the financial information about the group is presented as that of a single economic entity.
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Chapter 28: Further Consolidation Issues I: Accounting for Intragroup Transactions
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Q1) Blue Ltd sold inventory items (with a cost of $90 000)to its subsidiary Maroon Ltd for $120 000.Half of the inventory items were sold by Maroon Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?
A) Consolidated sales will decrease by $60 000.
B) Consolidated sales will decrease by $100 000.
C) Consolidated profit will decrease by $15 000.
D) Consolidated profit will decrease by $20 000.
Q2) AASB 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation even where the parent entity holds only a fraction of the issued equity. A)True B)False
Q3) Explain why unrealised profits and losses between entities within a group are eliminated on consolidation.Discuss when these transactions are realised for consolidated statement purposes.
Q4) Explain why gains recognised on sale of assets between entities within a group are reversed on consolidation.
Page 30
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Chapter 29: Further Consolidation Issues II: Accounting for
Non-Controlling Interests
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Q1) Describe the two options in measuring the non-controlling interest.
Q2) Calculating goodwill for a subsidiary that has a non-controlling interest involves:
A) Taking the parent entity's share of the fair value of the identifiable net assets of the subsidiary and deducting it from the fair value of the consideration paid.
B) Dividing the fair value of the consideration paid for the subsidiary by the percentage ownership of the parent entity and deducting the fair value of the identifiable net assets of the subsidiary from that amount.
C) Taking the book value of equity of the subsidiary and deducting the fair value of the consideration paid for the subsidiary.
D) Dividing the fair value of the identifiable net assets of the subsidiary by the percentage ownership of the parent entity and deducting this amount from the fair value of the consideration paid.
Q3) In preparing consolidated financial statements non-controlling interests are allocated on a 'line-by-line' basis.
A)True
B)False
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Chapter 30: Further Consolidation Issues IV: Accounting for
Changes in the Degree of Ownership of a Subsidiary
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Q1) When shares in a subsidiary are sold during a period,any income and expenses recorded in the consolidated accounts that relate to the subsidiary are eliminated.
A)True
B)False
Q2) AASB 10 Consolidated Financial Statements prescribes that changes in the parent's ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
A)True
B)False
Q3) When the parent sells some of its shares in the subsidiary,what are the implications,in consolidated accounting,for: (a)the comprehensive income statement; (b)the statement of financial position; and (c)the opening retained earnings balances?
Q4) Discuss the accounting treatment for the current year's profit and loss earned by the subsidiary from the start of the financial period to the date the parent loses control of this subsidiary.
Q5) Discuss what happens when a parent loses control over a subsidiary
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Chapter 31: Accounting for Equity Investments,including
Investments in Associates and Joint Arrangements
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Q1) A joint arrangement where assets and liabilities for the arrangement are held in a separate vehicle can be either a joint venture or a joint operation.
A)True
B)False
Q2) In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,the investor shall disclose the contingent liabilities of its associates.
A)True
B)False
Q3) When two or more venturers combine their operations,resources and expertise to manufacture,market and distribute jointly a particular product this is likely to be categorised as a jointly controlled entity under AASB 11 Joint Arrangements.
A)True
B)False
Q4) The one-line method of accounting for joint ventures is not permitted under AASB 11. A)True
B)False
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Page 33
Chapter 32: Accounting for Foreign Currency Transactions
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Q1) The spot rate is defined in AASB 121 as:
A) the rate at which the currency to be exchanged is currently selling against a bundle of currencies of major trading partners.
B) the exchange rate for immediate delivery of currencies to be exchanged.
C) one identified exchange rate for the relevant currencies from the period on or around the date of the transaction.
D) the current exchange rate as implied by forward-exchange contracts in place at the time of the transaction.
Q2) Which of the following items is not a required condition for applying hedge accounting?
A) The hedge is expected to be highly effective.
B) The forecast transaction does not affect profit or loss.
C) The effectiveness of the hedge can be reliably measured.
D) The hedge is assessed on an ongoing basis.
Q3) A foreign currency transaction shall be recorded on initial recognition in the:
A) presentation currency.
B) local currency.
C) foreign currency.
D) functional currency.
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Page 34
Chapter 33: Translating the Financial Statements of Foreign Operations
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Q1) Explain at what exchange rate income and expenses of a foreign operation are generally translated,and the exception that exists to the 'general rule'.
Q2) The amount of a foreign operation's post-acquisition retained earnings as translated into Australian dollars will depend on the amount translated from the statement of comprehensive income.
A)True
B)False
Q3) Distinguish monetary items from non-monetary items.Provide two examples of each.
Q4) On the disposal of a foreign operation,AASB 121 prescribed that the cumulative amount of the exchange differences deferred in equity be reclassified to retained earnings.
A)True
B)False
Q5) Distributions from retained profits are translated at: A) the spot rate.
B) the rates current at the reporting date.
C) the rates current at the dates when the retained profits were created.
D) The standard is silent on this translation.
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Chapter 34: Accounting for Corporate Social Responsibility
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Q1) Explain how the move to sustainability accounting detracts from the entity assumption adopted in financial reporting.
Q2) Companies are required to disclose information about payments to directors and executives and the average wage level for their major classes of employees by function within the organisation.
A)True
B)False
Q3) Sustainable cost has been defined by Gray and Bebbington as:
A) the amount an organisation must spend to put the biosphere at the end of the accounting period back into the state (or its equivalent) it was in at the beginning of the accounting period.
B) the amount an entity is able to pay in a sustained way to repair damage to the environment and so achieve an acceptable level of inter-generational equity.
C) the cost of sustainable production levels including opportunity costs of production foregone.
D) the minimum amount that an entity will need to spend over the midterm to ensure that it meets its environmental commitments to bodies such as Environmental Protection Authorities.
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