Accounting Standards and Regulations
Exam Answer Key
Course Introduction
This course offers an in-depth exploration of the principles, concepts, and frameworks underpinning accounting standards and regulations at both national and international levels. Students will examine the development, implementation, and implications of standards such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), as well as the roles of regulatory bodies like the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). Emphasis is placed on the interpretation and application of these standards in the preparation, presentation, and disclosure of financial statements, considering ethical, legal, and professional responsibilities. The course also covers recent changes in accounting standards and emerging issues, preparing students to navigate the dynamic regulatory environment of the accounting profession.
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) A criticism of the way the membership of the Financial Reporting Council has been structured is that:
A) Groups that are primarily interested in the financial performance of entities are represented while lobby groups with other interests are not.
B) It has increased the breadth of representation too widely.
C) The Treasurer does not have sufficient input into the selection process.
D) It is dominated by professional accountants.
Answer: A
Q2) The Australian accounting profession is dominated by which bodies?
A) CPA Australia, PriceWaterhouseCoopers Australia, the Institute of Chartered Accountants in Australia, and the Institute of Public Accountant
B) the Institute of Chartered Accountants in Australia, the Institute of Public Accountant, CPA Australia
C) the Institute of Chartered Accountants in Australia, the Institute of Public Accountant, Ernst & Young Australia
D) CPA Australia, the Institute of Chartered Accountants in Australia and the Institute of Public Accountant
Answer: D
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Chapter 2: The Conceptual Framework of Accounting and Its Relevance
to Financial Reporting
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Q1) Faithful presentation is one on the two primary fundamental qualitative characteristics for financial information to be useful.According to the IASB Conceptual Framework a financial report is faithfully presented if it is:
A) consistent, free from bias and free of material error.
B) accurate, free from bias and free of material error.
C) complete, neutral and free of material error.
D) reliable, neutral and free of material error.
Answer: C
Q2) Which of the following actions best describes the qualitative characteristic 'relevance'?
A) The financial report of KMC Ltd was audited by one of the Big 4 four accounting firms.
B) DGC omitted a sales transaction equal to 10.5% of its accounts receivable.
C) MCB Ltd and DGC Ltd both use accelerated depreciation method.
D) GEP Ltd did not revalue its intangible assets because it was difficult to obtain the fair value of the assets.
Answer: B
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Chapter 3: Theories of Accounting
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Q1) In the situation where a contractual arrangement has been negotiated that provides managers with a bonus based on the profits generated by the entity:
A) The efficiency perspective identifies this as a way of minimising agency costs by aligning the interests of the principal and the agent.
B) The opportunistic perspective predicts that managers will seek to adopt accounting methods that best reflect the performance of the organisation.
C) The underlying premise of PAT is that agents (managers) aim to act in the best interests of the organisation, so the bonus is recognition of those efforts.
D) The efficiency perspective identifies this as a way of minimising agency costs by aligning the interests of the principal and the agent and the opportunistic perspective predicts that managers will seek to adopt accounting methods that best reflect the performance of the organisation.
Answer: A
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Chapter 4: An Overview of Accounting for Assets
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Q1) Advertising costs are not typically capitalised because:
A) It is not considered probable that the advertising will generate future economic benefits.
B) The advertising cannot be controlled by the entity.
C) The future economic benefits cannot generally be measured reliably.
D) The cost of the advertising is typically greater than the recoverable amount.
Q2) Distinguish between ownership from control and discuss how this is may affect the definition of an asset.
Q3) If the expected value in use of an asset is more than its market value,then it is expected that the entity will retain the asset.
A)True
B)False
Q4) According to the AASB Framework an asset should have a number of characteristics,including:
A) It must be owned by the entity.
B) It must be expected to provide future economic benefits to the entity.
C) The transaction giving rise to the ownership must have already occurred.
D) The future economic benefits must be very likely to eventuate.
Q5) Discuss various measurement rules that can be adopted for measurement of assets.
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Chapter 5: Depreciation of Property, plant and Equipment
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Q1) The profit or loss on the sale of an asset is calculated by deducting the cost of the asset from the sale amount.
A)True
B)False
Q2) The expenditure to modify an asset so that its service potential is improved should be expensed.
A)True
B)False
Q3) The useful life of the asset reflects the time from when an asset is built/acquired until it is no longer able to produce any benefits.
A)True
B)False
Q4) Which depreciation policy is likely to reduce debt-to-equity ratio?
A) sum-of-digits
B) straight-line rate
C) declining-balance
D) sum-of-digits or declining-balance
Q5) Explain how different methods of cost apportionment may unrealistically provide high values for non-current assets.
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Chapter 6: Revaluations and Impairment Testing of
Non-Current Assets
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Q1) 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
Q2) When an entity adopts the valuation model to account for its property,plant and equipment,which of the following statement(s)is/are correct?
A) If an item is revalued, all assets in the same class shall be revalued.
B) If an asset's carrying amount is decreased as a result of a revaluation, the decrease is always recognised in profit and loss.
C) If an asset's carrying amount is increased as a result of a revaluation, the increase is always credited directly to equity.
D) All of the given answers.
Q3) If an asset's carrying amount is increased due to an initial revaluation that increase shall be recognised in:
A) other comprehensive income.
B) the profit and loss.
C) in the disclosures.
D) None of the given answers are correct.
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Chapter 7: Inventory
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Q1) According to AASB 102 material information relating to which of the following must be disclosed?
A) the carrying amount of closing inventories included in equity accounted profits
B) the carrying amount of inventories classified as non-current assets
C) the aggregate amount of inventory recorded at recoverable amount
D) the carrying amount of inventories revalued upwards as at the end of the period
Q2) Reversal of a previous inventory write down is not advocated in AASB 102.
A)True
B)False
Q3) Identify and discuss the items included as inventory cost.
Q4) According to AASB 102,one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?
A) specific identification, LIFO or FIFO
B) absorption costing, weighted average costing or LIFO
C) FIFO, specific identification or weighted average cost
D) weighted average costing, ABC costing or FIFO
Q5) Discuss when a standard cost may be used to arrive at the cost of inventory.
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Chapter 8: Accounting for Intangibles
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Q1) An intangible asset may be recorded:
A) if acquired from an external party at a cost.
B) if it is internally generated and fits the definition of an asset and meets the associated recognition criteria.
C) at a value other than cost if that value more reliably records the worth of the intangible asset.
D) at the cost of the asset, which must exclude any additional expenditure required to prepare the asset for use.
Q2) The requirement of AASB 138 in relation to the amortisation of development cost is that:
A) It is to be amortised straight-line over a period not greater than 20 years.
B) It is to be amortised from the time of deferral so as to match the cost to the related benefits.
C) It is to be amortised using an accelerated depreciation rate over a period not exceeding 10 years.
D) It is to be amortised from the time the asset is available for use and shall reflect the consumption of the economic benefits by the entity.
Q3) Explain the difference between an 'infinite life' and an 'indefinite life'.
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Chapter 9: Accounting for Heritage Assets and Biological Assets
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Q1) AASB 1037 and AASB 141 have been criticised on the grounds that:
A) their affect is to overstate the payout ratio relative to companies in the US.
B) they emphasise reliability over relevance in asset measurement.
C) they limit the accounting methods available to report on these types of assets.
D) they will hinder the timely production of financial reports.
Q2) AASB 141 prohibits the classification of biological assets as current or non-current.
A)True
B)False
Q3) AASB 141 excludes certain biological assets from its scope.To be included:
A) the living animal or plant must be capable of earning revenue.
B) the asset must be alive and may include organisms such as viruses.
C) the living animal or plant must be used in a commercial venture.
D) the living animal or plant may only be used within an agricultural activity.
Q4) 'Wine' is classified as a processed product of the agricultural produce 'grapes' and is still within the scope of AASB 141 Agriculture.
A)True
B)False
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Chapter 10: An Overview of Accounting for Liabilities
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Q1) A debenture will be issued at par value:
A) because that is the offer price; if the rate offered is too low the offer will be under-subscribed, so those who take it up will receive more interest.
B) on most occasions, because management is careful to issue the debentures at an amount close to the market rate.
C) on those rare occasions when the coupon rate is the same as the market rate.
D) on those occasions when the offer rate is equal to the coupon rate.
Q2) Explain,in the context of Positive Accounting Theory,the implications of making professional judgments in respect to recognising and measuring liabilities.
Q3) When determining whether a liability exists,the intentions or actions of management need to be taken into account.
A)True
B)False
Q4) A guarantee provided to a financier for a loan taken out by another entity,where default on that loan is uncertain as at the reporting date,is an example of a contingent liability.
A)True
B)False
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Chapter 11: Accounting for Leases
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Q1) Under AASB 117,operating leases require the following disclosures by lessees:
A) the total of future minimum sublease payments expected to be received under non-cancellable subleases at the statement of financial position date.
B) a general description of the lessee's significant leasing arrangements.
C) No disclosures are required as operating leases are expensed each year.
D) the total of future minimum sublease payments expected to be received under non-cancellable subleases at the statement of financial position date and a general description of the lessee's significant leasing arrangements.
Q2) A non-cancellable lease,which transfers the risks and rewards associated with asset ownership,can still be terminated early with the permission of the lessor.
A)True
B)False
Q3) The depreciation policy for depreciable leased assets shall be consistent with:
A) the lessor's normal depreciation policy for similar assets.
B) the lessee's normal depreciation policy for similar assets.
C) the lessor's implicit rate of interest.
D) the lessee's implicit rate of interest
Q4) Explain the benefits of a sale and leaseback transaction.
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Page 13
Chapter 12: Accounting for Employee Benefits
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Q1) AASB 119 has resulted in many more companies recognising liabilities for employee entitlements.There is evidence that this requirement has the effect of:
A) creating cash reserves from which employee entitlements can be paid in the case of company insolvency.
B) increasing the probability of companies becoming insolvent.
C) reducing the level of employment in Australia.
D) None of the given answers are correct.
Q2) The creation of cash reserves through accounting provisions ensures employees can be paid their entitlements as they fall due.
A)True
B)False
Q3) In a defined benefit plan the differences between expected and actual returns on high quality bonds will lead to:
A) any actuarial and investment risk moving from the employer to the employee.
B) actuarial gains and losses.
C) a change in the discount rate.
D) none of the given answers.
Q4) Discuss the four steps involved in accounting for defined benefit funds.
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Page 14
Chapter 13: Share Capital and Reserves
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Q1) Share capital is also referred to as:
A) equity
B) contributed equity
C) owners contribution
D) shareholder equity
Q2) A company may elect to issues its shares at any price,which will depend on:
A) the last sales price for the company's shares before the new issue.
B) the market demand.
C) the minimum price that has been paid for the shares over the last reporting period. .
D) the amount specified in legislation at which all Australian companies were required to issue shares.
Q3) Discuss the primary role of the statement of changes in equity,and what is included in such a statement.
Q4) It used to be normal practice to issue shares at below par value.
A)True
B)False
Q5) Ordinary shares receive low dividends because they do not perform very well.
A)True
B)False
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Chapter 14: Accounting for Financial Instruments
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Q1) A potential downturn in the share market can be overcome by:
A) taking a buy position on a contract for SPI futures and then closing out the contract if the market begins to rise.
B) taking out a contract SPI futures and agreeing to a sell position. The contract should be closed out if the market begins to rise.
C) entering into a forward exchange rate contract and specifying a specific date to purchase currency at a set rate.
D) hedging by agreeing to deliver goods at a specific date in the future at a predetermined price.
Q2) Under AASB 9,an entity is required to recognise a financial asset or liability on its statement of financial position when,and only when,it becomes a party to the contractual provisions of the instrument.
A)True
B)False
Q3) A put option on a company's shares entitles the holder to buy that company's shares at a future time for a specified price.
A)True
B)False
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Chapter 15: Revenue Recognition Issues
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Q1) Which of the following is not a disclosure requirement of IASB (2011)?
A) progress billings in excess of costs incurred on construction contracts
B) If control of an asset is transferred to a customer before the customer pays consideration this must be disclosed as a contract asset or receivable.
C) If alternative descriptions are used in the statement of financial position sufficient information must be disclosed to the users to be able to distinguish between receivables and contract assets.
D) The gross amount of work progress must be disclosed in the statement of financial position.
Q2) Gains must be reported net of related expenses.
A)True
B)False
Q3) Gains never arise from the ordinary activities of an entity.
A)True
B)False
Q4) IASB (2011)requires revenues to be measured in terms of historical cost to improve reliability.
A)True
B)False
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Chapter 16: The Statement of Comprehensive Income and Statement of Changes in Equity
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Q1) As part of the process of international harmonisation,standard setters have removed the need for professional judgment to be exercised in respect of expenses; all discretion that once existed has been removed.
A)True
B)False
Q2) The income statement under AASB 101 is designed to report all revenues and expenses to determine profit or loss.
A)True
B)False
Q3) All disclosure requirements that relate to an entity's profit or loss are included in AASB 101.
A)True
B)False
Q4) 'If we were to look only at the expenses and income recorded in the income statement we would not get a full picture of all expenses and income that were recognised in the current period'.Explain what this statement means,and other items that need to be 'looked at'?
Q5) Discuss the impact changes in accounting policies can have on users of the financial statements.
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Chapter 17: Accounting for Share-Based Payments
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Q1) AASB 2 requires all share-based payment transactions to be expensed on grant date and the credit is equity.
A)True
B)False
Q2) AASB 2 requires all share-based payment transactions to be recognised at: A) grant date.
B) balance date.
C) exercise date.
D) settlement date.
Q3) Issue of shares in exchange for shares of another entity in a purchase transaction of the net assets of an entity in a business combination is within the scope of AASB 2 Share-based Payment.
A)True B)False
Q4) Why are equity instruments in a share-based payment transactions modified? What is the accounting treatment for such modifications that is consistent with AASB 2?
Q5) Discuss the hierarchy to follow in determining which fair values to use in a share-based payment transaction that is consistent with AASB 2.
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Chapter 18: Accounting for Income Taxes
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Q1) Recognising deferred tax assets and deferred tax liabilities as per AASB 112 creates some conflict with the definition of assets and liabilities in the AASB Conceptual Framework.Key issues in this regard are:
A) It is questionable whether or not the company controls the benefits from the deferred tax asset, and there is not a present obligation to transfer the funds represented in the deferred tax liability to the government.
B) The company really has no claim against the government for the amount of the deferred tax asset and it is not probable that the company will have to pay the deferred tax liability.
C) Setting off the deferred tax asset and deferred tax liability does not meet the requirements of the AASB Conceptual Framework and there is a contingent element involved in the recognition of the deferred tax asset.
D) The AASB Conceptual Framework does not permit the recognition of the rights to future revenues implicit in assets to trigger obligations to future expenses implicit in liabilities and the extent to which a deferred tax liability is recognised should not depend on management's intention to sell a revalued asset.
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Chapter 19: The Statement of Cash Flows
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Q1) Which of the following would not be an operating activity cash outflow?
A) taxes paid
B) acquisition of goods and services
C) acquisition of intangible assets
D) employee benefits paid
Q2) All cash flows from investing and financing activities are required to be reported on a gross basis.
A)True
B)False
Q3) Describe the application of AASB 107 to interest and dividends received.
Q4) 'Cash flows from operations would seem to provide a reasonable guide to the ability of a firm to service debt'.Discuss.
Q5) The statement of cash flows is argued by researchers to be a more reliable statement than accrual statements.
A)True
B)False
Q6) Discuss the treatment of interest and dividends in accordance with AASB 107 Statement of Cash Flows.
Q7) Identify and discuss the three classifications of the statement of cash flows.
Page 21
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Chapter 20: Accounting for the Extractive Industries
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Q1) The development phase is described in AASB 1022 as including:
A) the establishment of the existence of a technically feasible and commercially viable deposit that is capable of extraction.
B) the establishment and commissioning of facilities and infrastructure to enable the development of the area of interest.
C) the establishment of access to the deposit or field and other activities involved in establishing access for commercial production.
D) the establishment of infrastructure to permit the day-to-day activities necessary to bring the natural substance to a state in which it becomes a saleable product.
Q2) Explain why firms do not restate its recoverable reserves to fair value? In your response consider the findings of Mirza and Zimmer (1999).
Q3) AASB 6 effectively permits entities to choose between the full-cost method and the area-of-interest method.
A)True
B)False
Q4) Discuss how an entity accounts for restoration costs and the measurement used.
Q5) Discuss the recognition of revenue for the extractive industries.
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Page 22
Chapter 21: Accounting for General Insurance Contracts
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Q1) Risk margins are determined on the basis of:
A) the robustness of valuation models used.
B) past experience of the insurer and the industry.
C) the reliability and volume of data.
D) all of the given answers.
Q2) What is an example of deferred acquisition costs and how does AASB 1023 require them to be treated?
A) They include commission or brokerage paid to agents to attract business. They should be deferred as an asset and systematically amortised over the period of expected benefit.
B) They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land.
C) They include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date.
D) They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land and they include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date.
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Chapter 22: Accounting for Superannuation Plans
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Q1) Discuss what is referred to as accrued benefits to members of a (a)defined benefit plan and (b)defined contribution plan.
Q2) How are the accrued benefits of a defined benefit plan measured?
A) They are measured as the difference between the carrying value of the plan's assets and the liability to pay funds out to members on retirement.
B) They are measured as the market value of the assets of the plan with no accumulated depreciation deducted.
C) They are a residual amount: the difference between the carrying amount of the assets and the sum of the income tax and sundry liabilities of the plan.
D) They are measured in a detailed actuarial review to determine the present value of expected future benefit payments arising as a result of membership of the fund up to measurement date.
Q3) What is the accounting treatment for sale of non-current assets in a superannuation plan?
Q4) A defined benefit plan is also known as an accumulation fund.
A)True
B)False
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Chapter 23: Events Occurring After the End of the Reporting Period
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Q1) Reporting events after reporting date is concerned with:
A) information that becomes available between the date the reports are completed and the date the auditor signs the audit report.
B) events that occur or information that becomes available after the directors sign the Directors' Declaration and before the reports are printed.
C) events or transactions that occur or about which information becomes available between reporting date and time of completion.
D) events or transactions that occur or about which information becomes available between reporting date and reporting period date.
Q2) Discuss the accounting treatment required in AASB 110 for dividends declared and proposed after reporting date.How does this differ from pre-AIFRS treatment?
Q3) In general a subsequent event is one that occurs,or the occurrence of which becomes known,after the reporting date.
A)True
B)False
Q4) Discuss the two types of events after the reporting period.
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Chapter 24: Segment Reporting
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Q1) Discuss the specific financial information items that must be disclosed in relation to segment reporting.
Q2) Segment information may be useful to investors who wish to use ethical guidelines about which industries or countries they invest in.
A)True
B)False
Q3) In the situation where an entity has invested in segments that are diverse:
A) Segment information should enable the users of the financial statements to better predict the future profitability of the entity.
B) Segment information should enable the users of the financial statements to better predict the risk exposure of the entity.
C) Segment information is less useful because according to portfolio theory investments that are not correlated reduce the risk of an entity.
D) Segment information should enable the users of the financial statements to better predict the future profitability of the entity and enable the users of the financial statements to better predict the risk exposure of the entity.
Q4) Explain the reconciliation information AASB 8 requires for segment reporting.
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Chapter 25: Related Party Disclosures
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Q1) AASB 124 requires a standard,detailed set of disclosure requirements for all related-party transactions.
A)True
B)False
Q2) Directors' income is defined in AASB 124 as including only:
A) the regularly paid salary of the directors.
B) the regularly paid salary, any bonuses paid and retirement benefits.
C) bonuses, commissions or salaries, retirement benefits and any brokerage or commission made on the subscription or agreement to subscribe to equity instruments in the entity or any of its related parties.
D) none of the given answers.
Q3) An alternate director who is not acting in that capacity is considered a related party in AASB 124.
A)True
B)False
Q4) AASB 124 requires an entity to disclose total compensation of key management personnel.What items are included in key management personnel's remuneration/compensation?
Q5) Discuss the objective of AASB 124 Related Party Disclosures.
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Chapter 26: Earnings Per Share
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Q1) Describe how the calculation of a basic EPS will be affected by a bonus issue that is in accordance with AASB 133 Earnings per Share.
Q2) According to AASB 133,the number of shares included in the weighted-average number of shares is determined by:
A) the number of shares that meet the definition of ordinary shares as at the end of the reporting period.
B) the number of shares that are on issue as ordinary shares for part or all of the period.
C) the number of ordinary shares (that meet the definition of ordinary shares) at the beginning of the period plus any ordinary shares issued during the period less any reductions in ordinary shares during the period.
D) the number of ordinary shares (as defined) that are issued or partly paid up at the beginning of the period plus any shares issued during the period whether fully or partly paid up.
Q3) Under AASB 133 an entity is not required to disclose earnings per share where a loss has been made for the period.
A)True
B)False
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Chapter 27: Accounting for Group Structures
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Q1) Which of the following statements is an accurate description of the difference between a legal entity and an economic entity?
A) An economic entity is one that combines one or more legal entities with synergy such that they each make higher returns than they would individually. If an entity ceases to effectively produce increased returns in this way it becomes uneconomic. A legal entity is one that is recognised in law as having a separate existence from its owners.
B) A legal entity is one that uses appropriate corporate governance measures to ensure that it abides by legislative requirements and other legal regulations. An economic entity may span more than one legal entity, but is not a legal entity in itself.
C) An economic entity is one that is formed for the purpose of generating a profit and therefore a return to owners. A legal entity is one that is circumscribed by legal constitution or accounting standards as constituting a reporting entity.
D) A legal entity refers to an entity that has its own particular legal status such as a company, trust or partnership. The concept of an economic entity emphasises substance over legal form. It may operate as a coordinated entity and contain more than one legal entity.
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Chapter 28: Further Consolidation Issues I: Accounting for Intragroup Transactions
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Q1) Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts
Q2) Parent Ltd sells inventories to Child Ltd amounting to $200 000 during the financial year.The inventories are no longer in the hands of Child Ltd at year-end.Parent Ltd is no longer required to eliminate these intragroup transactions because these transactions have been realised by sale to external parties.
A)True
B)False
Q3) 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.
Q4) Discuss the reasoning behind the elimination all dividends receivable/payable between entities within the group during the consolidation process.
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Chapter 29: Further Consolidation Issues II: Accounting for
Non-Controlling Interests
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Q1) AASB 101 Presentation of Financial Statements requires a separate line item on the face of the statement of financial position showing the non-controlling interest in equity.
A)True
B)False
Q2) Buster Ltd owns 85 per cent of the issued capital of Rhymes Ltd.During the period ended 30 June 2016 the operating profit of Rhymes Ltd was $680 000.Buster Ltd bought goods for $540 000 from Rhymes.The goods cost Rhymes $400 000 and at the end of the period none of this inventory was still on hand.Rhymes paid Buster a management fee of $100 000 during the period.Goodwill on consolidation was impaired by $30 000.Rhymes paid a dividend of $40 000 at the end of the period. What is the non-controlling interest in the operating profit of Rhymes Ltd?
A) $87 000
B) $112 500
C) $102 000
D) $101 969
Q3) Detail three situations where the presence of non-controlling interests means that elimination journal entries would not be the same as they would be if the subsidiary was 100 per cent owned.
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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 additional shares in a subsidiary are acquired,AASB 10 requires each acquisition to be accounted for separately.
A)True
B)False
Q2) The profit or loss on the sale of shares in a controlled entity will be the same in the parent entity's legal books as it is in the consolidated accounts.
A)True
B)False
Q3) Briefly outline the general requirements of the single-date method of accounting for the acquisition of additional shares in a subsidiary.
Q4) Additional purchases of shares in a subsidiary should be accounted for by the combined tranche method,according to AASB 3.
A)True
B)False
Q5) Explain how the gain or loss is calculated for: (a)the parent's investment; (b)the economic entity; when the parent sells some of its shares in 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) AASB 128 requires that the investor's share of the post-acquisition profit or loss of its associates be adjusted for certain inter-entity transactions including:
A) the associate's transactions with its own associates.
B) any transactions between the associate and a controlled entity of the investor.
C) any transactions between the associate and any other associates of the investor.
D) any transactions between the associate and a controlled entity of the investor and any transactions between the associate and any other associates of the investor.
Q3) Outline the arguments for and against the use of equity accounting,relative to cost method,when accounting for an investment.
Q4) Discuss the accounting treatment for a joint operation as prescribed in AASB 11 Joint Arrangements.
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Chapter 32: Accounting for Foreign Currency Transactions
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Q1) Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
A)True
B)False
Q2) To classify an arrangement as a hedge,and therefore to apply 'hedge accounting',AASB 132 requires a set of strict conditions be met.
A)True
B)False
Q3) According to AASB 123 a qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale.
A)True
B)False
Q4) Describe,with examples,the reasons why organisations would want to swap a loan denominated in one currency for another.
Q5) Discuss the accounting treatment required under AASB 121 The Effects of Changes in Foreign Exchange Rates when a reporting entity has a foreign currency monetary items at the reporting date.
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Chapter 33: Translating the Financial Statements of Foreign Operations
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Q1) When translating the financial statements of a foreign operation to presentation currency,AASB 121 requires any gain or loss on translation of the accounts to be:
A) recognised as a revenue or expense in the statement of comprehensive income.
B) transferred to a reserve in the equity section of the statement of financial position.
C) deferred and amortised over a period not greater than 20 years.
D) written off against the non-monetary assets of the foreign operation with any balance remaining recognised as a revenue or expense in the period.
Q2) As prescribed in AASB 121,in translating the accounts of a foreign operation from local currency to functional currency,the exchange rate to use for land is the exchange rate at the date of the transaction.
A)True
B)False
Q3) When consolidating financial statements of foreign operations,we use the same rate each year for goodwill,so that the amount recognised on consolidation will not fluctuate from year to year.
A)True
B)False
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Chapter 34: Accounting for Corporate Social Responsibility
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Q1) A specific Australian requirement for companies to provide environmental information in their annual reports is available in AASB 137 Provisions,Contingent Liabilities and Contingent Assets.
A)True
B)False
Q2) 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.
Q3) Discuss the objectives for an integrated reporting framework.
Q4) Discuss the concept of the 'community licence to operate'.
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