Advanced Financial Accounting
Final Test Solutions
Course Introduction
Advanced Financial Accounting delves into the complex concepts and practices related to the preparation and analysis of financial statements for entities with intricate organizational structures, such as consolidated groups, multinational corporations, and entities involved in mergers, acquisitions, and partnerships. The course emphasizes accounting for intercompany transactions, business combinations, foreign currency translations, and the impact of international accounting standards. Students will also explore contemporary issues such as segment reporting and accounting for derivatives, equipping them with the critical skills needed to interpret and apply advanced accounting methods in a dynamic global business environment.
Recommended Textbook Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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29 Chapters
707 Verified Questions
707 Flashcards
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Page 2
Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Sample Questions
Q1) The most correct description of the stages in the development of AASB accounting standards is:
A) invitation to comment, exposure draft, discussion paper, approval of final standard
B) discussion paper, public comment, exposure draft, approval of final standard
C) discussion paper, exposure draft, approval of final standard, review
D) discussion paper, exposure draft, public comment, approval of final standard
Answer: D
Q2) The Corporations Act 2001 requires that the financial reports must give:
A) a true and fair view of the financial position and performance and of the accounting standards
B) a true and fair view of the reporting position
C) a true and fair view of the accounting standards
D) a true and fair view of the financial position and performance
Answer: D
Q3) Explain and discuss the procedures currently operating in Australia for dealing with issues involving the development of AASB Interpretations.
Answer: Not Answer
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Page 3
Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Sample Questions
Q1) Under SAC2,parties performing a review or oversight functions for general-purpose financial reports would include all of the following,except:
A) ACCC
B) Lenders
C) Stock Exchange
D) ASIC
Answer: B
Q2) The elements of financial statements,as outlined in the conceptual framework,are:
A) assets, liabilities, equity, income, expenses
B) balance sheet, income statement, cash flow statement
C) materiality, comparability, relevance, reliability
D) historical cost, current cost, net market value, constant purchasing power
Answer: A
Q3) The first and second levels of the conceptual framework are concerned with:
A) the qualitative characteristics of financial reporting
B) the elements of financial reporting
C) the objective of financial reporting
D) the scope of financial reporting
Answer: D
4
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Sample Questions
Q1) Attributes of relevant information include:
A) a faithful representation of transaction
B) a faithful representation of the economic effect of the transaction
C) neither A nor B
D) both A and B
Answer: C
Q2) SAC3 arranges the qualitative characteristics in three levels:
A) fundamentals, presentation, display
B) fundamentals, enforcement, display
C) fundamentals, enhancing, constraints
D) assets, liabilities, owners' equity
Answer: C
Q3) Under the Framework,the purchase of inventory by an entity is:
A) an expense as it decreases equity
B) an expense as it arises from carrying out the major activities of the entity
C) an expense because it is a flow
D) not an expense
Answer: D
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Sample Questions
Q1) Measuring and reporting assets using historical cost is most relevant in satisfying:
A) the stewardship objective of financial reporting
B) the decision usefulness objective of financial reporting
C) the objectives of relevance and reliability in financial reporting
D) both A and B
Q2) 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
Q3) The amount that an entity would need to receive to compensate it for the loss of an asset is known as:
A) value-in-use
B) carrying value
C) deprival value
D) value-in-exchange
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Page 6
Chapter 5: The Choice of Accounting Methods
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Sample Questions
Q1) International harmonisation:
A) refers to the harmonisation of Australian accounting standards and reporting practices with international standards and practices
B) was supported by the Group of 100
C) led to the adoption of standards, even if those standards were no compatible with the conceptual framework
D) all of the above
Q2) If a firm has agreed to a debt covenant that specifies a maximum ratio of debt-to-total tangible assets,the probability of breaching the covenant is reduced if:
A) additional borrowing is undertaken
B) advertising is treated as an asset rather than as an expense
C) depreciation is charged at a higher rate
D) research and development costs are treated as an expense rather than as an asset
Q3) Explain the income smoothing hypothesis.In your answer discuss the reluctance of Chief Financial Officers to use accounting policy choice to achieve income smoothing post-Enron.
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Chapter 6: The Balance Sheet: an Overview
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Sample Questions
Q1) The statement in relation to AASB 108 and the correction of prior-period errors that is incorrect is:
A) Prior-period errors are material omissions from and misstatements in an entity's statement of financial position and associated notes
B) The correction must not be included in the profit or loss for the period in which the error is discovered
C) Comparative figures for prior periods need not be restated
D) A retrospective correction must be made which will normally affect retained earnings in the current statement of financial position
Q2) Entities are required to disclose comparative information the previous period.Discuss how the correction of prior period errors may impact on the presentation of the financial statements.
Q3) '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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Sample Questions
Q1) The Enterprise Company manufactures a single product.At the normal level of production of 100 000 units per annum the costs of production are:
Direct (variable) costs per unit\(\quad\$ 75\)
Indirect (fixed) costs
Production costs \(\quad \$ 250000\)
Finance and administration costs \(\quad \$ 50000\)
The unit cost of manufacture for the product using a direct costing approach is:
A) $77.50
B) $75
C) $78
D) none of the above
Q2) AASB 108 requires that changes to accounting estimates be dealt with prospectively.This means that the effect of a past overestimate of doubtful debts expense is:
A) recognised in the current reporting period
B) used to increase this periods estimated expense
C) both A and B
D) neither A nor B
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Page 9
Chapter 8: Accounting for Property, plant and Equipment
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Sample Questions
Q1) Explain and discuss how donated assets should be recorded in the accounts.
Q2) The accounting standard that specifically deals with property,plant and equipment is:
A) AASB 138
B) AASB 116
C) AASB 132
D) AASB 101
Q3) Which factors should be taken into account when selecting a depreciation method?
A) The profit or loss for the year
B) Whether the asset has been re-valued
C) The amount that can be claimed as a tax deduction
D) None of the above
Q4) If borrowing costs are capitalised,capitalisation continues:
A) for the life of the qualifying asset
B) up to where substantially all the activities necessary to prepare the qualifying assets for its intended use or sale are complete
C) for the life of the business
D) none of the above
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Chapter 9: Accounting for Company Income Tax
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Sample Questions
Q1) Permanent differences (between revenues and expenses for accounting and tax purposes):
A) can cause Deferred Tax Liabilities but not Deferred Tax Liabilities to arise
B) can cause both Deferred Tax Assets and Deferred Tax Liabilities to arise
C) can cause Deferred Tax Assets but not Deferred Tax Liabilities to arise
D) can cause neither Deferred Tax Assets nor Deferred Tax Liabilities to arise
Q2) Explain the meaning and significance of each of the following terms in accounting for company income tax:
(i)Tax payable method
(ii)Tax Allocation - the balance sheet approach
(iii)Deferred tax asset
(iv)Deferred tax liability
(v)Tax base
(vi)Permanent difference
Q3) Unused (carried forward)tax losses:
A) sometimes give rise to a deferred tax liability
B) sometimes give rise to a deferred tax asset
C) always give rise to a deferred tax asset
D) always give rise to a deferred tax liability
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Page 11
Chapter 10: Accounting for Investments
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Sample Questions
Q1) Which basis of valuation for shares of other entities,held as current assets,is required under AASB 139?
A) The lower of cost and market value
B) Cost
C) Fair value
D) All bases of valuation are permitted
Q2) Under AASB 128,an entity,including an unincorporated entity such as a partnership,over which the investor has significant influence,and that is neither a subsidiary nor an interest in a joint venture,is the definition of an:
A) associate
B) associate partnership
C) association
D) accompanying entity
Q3) Explain the nature of investment properties and summarise the accounting treatment proposed by AASB 140.
Q4) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
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Page 12
Chapter 11: Accounting for Intangible Assets
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Sample Questions
Q1) The recommended treatment under AASB 138 and Interpretation 132 of i.planning costs and ii.graphics and content costs,incurred internally by a company to develop its website is:
A) write-off both as expenses
B) i. expense: ii. recognise as an intangible asset if all the requirements of AASB 138 are met
C) recognise both as intangible assets if all the requirements of AASB 138 are met for both
D) it depends on the reasons the website was developed, e.g., was it primarily to promote and advertise the company's products?
Q2) Compare the costs likely to be recorded for internally developed patents with those associated with a patent purchased in an arm's length transaction.
Q3) The initial patent period granted by the Australian Government and the potential legal life of trademarks and brand names,are respectively:
A) 10 years; unlimited, provided they continue to be registered
B) 16 years; unlimited, provided they continue to be registered
C) 20 years; 16 years
D) 7 years; 7 years
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Chapter 12: Accounting for Leases
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Sample Questions
Q1) Examine the following statements:
(a)Under an operating lease,substantially all the risks and benefits of ownership
Of the leased asset are transferred to the lessee
(b)A finance lease is normally non-cancellable
(c)Under a finance lease,legal ownership of the asset must be transferred To the lessee at the end of the lease
(d)The term of an operating lease usually covers 75% or more of the Economic life of the leased asset
A) Only (b) is correct
B) Only (a), (b) and (c) are correct
C) Only (a) and (d) are correct
D) All are correct
Q2) Which of the following is not a typical characteristic of an operating lease?
A) It can be used for almost any type of asset
B) It is essentially a rental agreement
C) It is similar to a leveraged lease
D) It is cancellable by the lessee at little or no cost
Q3) 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.
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Page 14
Chapter 13: Accounting for Employee Benefits
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Sample Questions
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) There are two types of risk associated with post-employment benefits,investment risk and actuarial risk.Explain these terms and describe the situations when these risks are borne by the employee and when they are borne by the employer (in accordance with AASB 119).
Q3) Which of the following is excluded from the scope of post-employment benefit considered by AASB 119?
A) Superannuation
B) Termination benefits
C) Administrative support
D) Free travel
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Chapter 14: Accounting for Financial Instruments
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Q1) Which of the following best describes the difference between a simple financial instrument and a compound financial instrument?
A) A simple financial instrument consists of only one financial asset/financial liability/equity instrument while a compound financial instrument contains both a liability and an equity element
B) A simple financial instrument accrues interest using simple interest formula while the compound financial instrument calculates interest on the compound formula
C) The fair value of a simple instrument is calculated quarterly while the fair value of a compound instrument accrues daily
D) A simple financial instrument has a less complex fee structure
Q2) A trader sells 2 futures contracts (a total value of $50)when the price of the contracts (based on the SPI 200 share price index)is 3030.When these contracts expire,the index itself is at 3015 points and the price of the SPI 200 contract units is 2995.The trader has:
A) made a gain of $1750
B) made a loss of $1750
C) made a loss of $875
D) made a gain of $875
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Chapter 15: Equity
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Sample Questions
Q1) A scheme where a company provides employees with options to acquire shares in the company where the primary aim of the scheme is to reduce conflict between owners and employees is known as:
A) a compensatory plan
B) a non-compensatory plan
C) an employee plan
D) none of the above
Q2) Which of the following is not an implication of the framework's definition of equity?
A) Measurement of equity depends on the concept of capital employed
B) Components of equity, such as share capital, can be identified
C) It cannot be identified independently of assets and liabilities
D) It ranks after liabilities on winding up
Q3) 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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Sample Questions
Q1) The expense example that is a classification by nature rather than by function is:
A) depreciation expense
B) administrative expenses
C) marketing expenses
D) occupancy expenses
Q2) Which of the following categories of revenue are not required to be disclosed separately under AASB 118?
A) Extraordinary items
B) Interest
C) Dividends
D) None; all of the above are required disclosure
Q3) A difference between the all-inclusive and the comprehensive income approaches to profit measurement is that:
A) the all-inclusive approach is broader than the comprehensive income approach
B) the two approaches have different treatments for prior-period adjustments
C) the comprehensive income approach includes all recognised changes in the carrying amount of assets and liabilities in the profit calculation
D) all are differences
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Chapter 17: The Cash Flow Statement
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Q1) An exception to the AASB 107 rule that normally gross cash flows should be disclosed is:
A) the refinancing of long-term loans
B) some transactions of financial institutions
C) items where the turnover is quick, the amounts are large, and the maturities are short
D) both B and C
Q2) Discuss how an entity that reports an after tax profit may be unable to generate positive cash flows from operating activities.
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) Distinguish between the three concepts of funds which can be used to construct a cash flow statement: cash,working capital and total resources.Which concept do you think provides the most useful information for decision making?
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Page 19
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Sample Questions
Q1) Henry James Ltd,a large retailing business,reports the following (all in $ millions):
\[\begin{array} { l r }
\text { Cost of goods sold } & \$ 52.0 \\
\text { Cost of services purchased } & 16.0 \\
\text { Salaries and wages } & 12.0 \\
\text { Interest expense } & 0.2 \\
\text { Depreciation and amortisation } & 2.0 \\
\text { Dividends paid } & 1.2 \\
\text { Sales revenue } & 90.0
\end{array}\]
The 'gross value added' for this business is:
A) $6.4
B) $10.0
C) $22.0
D) $38.0
Q2) 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) All of the following are usually seen as valid reasons for having different reporting standards for different business entities,except:
A) information needs of users may be different for different entities
B) costs of designing and installing an accounting information system may be different for different entities
C) investors in smaller entities generally do not read financial reports
D) users of the reports of some entities can obtain special purpose reports for their own use as required
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Chapter 20: Accounting for the Extractive Industries
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Q1) Ferrous Minerals Ltd paid $2 million for a mine site and has spent a further $500 000 developing the property prior to commencing production.Ferrous estimates that the mine will produce 10 million tonnes of ore and that the land will have a final residual value of $75 000 for sale and use as a waste disposal site.It is also believed that to extract the last 2 million tonnes of ore will require further drilling and excavation work at a cost of an extra $200 000.What is the amortisation rate that should be used to write-off pre-production costs in the first year of production (when it is estimated that 1 million tonnes of ore will be mined):
A) 27.0 cents per tonne
B) 26.25 cents per tonne
C) 24.25 cents per tonne
D) 21.875 cents per tonne
Q2) 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.
Q3) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
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Page 22
Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) 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?
Q2) In what circumstances should borrowing costs incurred in relation to real estate developments not be included as part of the cost of a development? Explain the reason(s)for not including borrowing costs for each of the circumstances you have listed.
Q3) The percentage-of-completion method for recognising profit on a construction contract will usually:
A) show a higher profit in all years than will the completed-contract method
B) show a higher profit in some year(s) and a lower profit in some year(s) than will the completed-contract method
C) show a lower profit in all years than will the completed-contract method
D) show a lower profit in most years than will the completed-contract method
Q4) Compare and contrast the two types of contract distinguished by AASB 111,and provide an example of each.
Page 23
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Chapter 22: Accounting for Agricultural Activity
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Q1) In what ways is agricultural activity different from other forms of assets? In what ways are they similar to other forms of assets? How do these differences,and similarities,affect accounting for agricultural activity?
Q2) Australian Accounting Standard AASB '141 Agricultural Activity' requires disclosure of the following items of information:
A) the method of calculating the replacement cost of biological assets
B) the basis for classifying biological assets either as inventory or as plant and equipment
C) the nature of biological assets, including their physical quantity
D) all of the above
Q3) 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
Q4) Describe the sustained-yield method and the standard method of measuring forestry assets.
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24
Chapter 23: Accounting for Superannuation Plans
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Q1) A superannuation fund to which employees can make voluntary contributions so as to increase the value of their benefits is known as a/an:
A) defined contribution fund
B) defined benefit fund
C) externally managed fund
D) contributory fund
Q2) Australian Accounting Standard AAS 25 'Financial Reporting by Superannuation Plans' requires that,wherever possible,the amount recorded for accrued liabilities of a defined benefit superannuation plan:
A) include allocated and unallocated contributions
B) be measured in present value terms using a published discount rate
C) equal the assets of the plan less the sum of tax and sundry liabilities
D) be measured in present value terms using an appropriate, risk-adjusted discount rate
Q3) Discuss the differences between the requirements of ED179 and AAS 25.
Q4) Discuss this statement,'Property,Plant and Equipment held by the fund for its intended use in the operation of the fund and not for sale or investments should not be measured at net market value'.
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Chapter 24: Accounting for Financial Institutions
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Q1) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
Q2) An insurance risk:
A) is a financial risk
B) results in risk being transferred from the policy holder to the insurer
C) both A and B
D) none of the above
Q3) The three broad categories of insurance do not include:
A) life insurance
B) fixed fee service contracts
C) fixed insurance services
D) general insurance
Q4) The main expense item for a bank is usually:
A) bad and doubtful debts
B) losses on foreign exchange dealings
C) staff salaries, wages and on-costs
D) interest paid on borrowings
Q5) Life insurance activities can be divided into two main categories.Identify these categories and explain the different types of activities which are classified under these categories.Illustrate with examples where possible.
Page 26
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Chapter 25: Financial Reporting in the Public Sector
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Q1) AASB 1052 requires:
A) local governments to disclose financial information by function
B) government departments to disclose financial information about service costs and achievements
C) government departments to disclose the assets deployed and the liabilities incurred by each of their activities
D) all of the above
Q2) The 'fund accounting' system previously used by government departments:
A) is very similar to conventional accrual accounting
B) is based wholly on cash receipts and expenditures
C) maintains a distinction between operating and capital expenditure
D) operates over a three to four year cycle, based on the normal period between elections
Q3) All of these are essential features of most of the definitions of infrastructure assets,except:
A) they are usually very profitable
B) they are necessary to sustain living standards
C) they are generally immovable
D) none of the above, i.e., all are essential features of infrastructure assets
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Page 27
Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) Place these steps in the development of an accounting standard by the IASB in the order in which they occur in practice.
i.Developing an exposure draft for public comment
ii.Publishing a discussion paper for public comment
iii.Establishing an advisory committee
iv.Approval by the IASB
A) i, ii, iii, iv
B) iii, i, ii, iv
C) ii, iii, i, iv
D) iii, ii, i, iv
Q2) Discuss the significance of the Norwalk Agreement and the relationship between the IASB and various national standard setters.
Q3) 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
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Page 28
Chapter 27: Foreign Currency Translation
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Q1) AASB 121 requires the translation of financial statements in which of the following circumstances?
i.if the domestic currency of the foreign operation is not the same as the functional Currency of its parent
ii.if the functional currency of the foreign operation is not the same as the functional Currency of its parent
iii.if the functional currency of the economic entity is not its presentation currency
iv.if the presentation currency of the economic entity is not its functional currency
A) i and ii
B) ii and iii
C) iii and iv
D) i and iii
Q2) AASB 121 requires an entity to measure its financial performance and financial position in its functional currency.What are the indicators of a functional currency? Is the functional currency the same as the presentation currency? Explain your answers.
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Chapter 28: Accounting for Corporate Social Responsibilities
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Sample Questions
Q1) Discuss the basic characteristics of the Carbon Pricing Mechanism (CPM).In your answer,explain the cap and trade scheme.
Q2) The approach that justifies corporate expenditure on socially responsible activities by suggesting that there is an implied social contract between a company and society that ensures the company's validity and survival as long as its activities are consistent with society's values is:
A) enlightened self-interest
B) stakeholder management strategy
C) legitimacy theory
D) ethical universalism
Q3) The statement concerning social responsibility reporting in Australia that is not correct is:
A) Australian companies have been at the forefront of reporting and are well ahead of their counterparts in Europe and the US
B) since the 1980s there has been an increasing trend in the quantity and quality of disclosure
C) companies tend to disclose more positive than negative information
D) none of the above, i.e., all are correct statements
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Chapter 29: Ethics in Accounting
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71412
Sample Questions
Q1) Teleological theories of ethics:
A) determine whether behaviour is ethical or unethical by observing the consequences of that behaviour
B) suggest that people behave with varying degrees of self-interest
C) are based on religious principles
D) can be all of the above
Q2) Ethical egoism is based on a belief that people should act in a way that:
A) maximises the 'good' of the person making the decision
B) maximises the 'common good'
C) maximises good to the top stratum of the elite
D) conforms with the rules established by God
Q3) Normative ethical theories are:
A) derived from common law rules of behaviour
B) descriptions of how people actually behave
C) beliefs about how people should behave
D) beliefs about how people actually behave
Q4) Briefly describe the classes of teleological theories that have been used to examine ethical behaviour.
Q5) Briefly describe three classes of deontological theories that have been used to examine ethical behaviour.
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