Company Accounting
Practice Questions
Course Introduction
Company Accounting focuses on the accounting principles and practices specific to companies, including the preparation and analysis of company financial statements, accounting for share capital, reserves, debentures, and dividends, as well as regulatory requirements and corporate disclosures. The course also explores amalgamations, absorptions, reconstructions, and the liquidation of companies, equipping students with the technical skills and knowledge to understand and manage complex accounting scenarios in corporate entities, while ensuring compliance with statutory regulations and financial reporting standards.
Recommended Textbook
Accounting for Corporate Combinations and Associations 8th Australian Edition by Neal Arthur
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11 Chapters
401 Verified Questions
401 Flashcards
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Page 2
Chapter 1: Text Objectives and Introduction to Consolidation
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Sample Questions
Q1) All companies must prepare separate financial statements.
A)True
B)False
Answer: False
Q2) Discuss the potential benefits of conducting economic activity through a group structure
Answer: Potential benefits:
- Diversification-reducing risk and potentially increasing returns
- Attracting capital without loss of control
- Using corporate veil to manage risk
- Lowering cost of borrowing
- Better compliance with sovereign regulatory requirements
- Reducing tax via transfer pricing opportunities
Q3) Investments in associates (other than those classified as held for sale)will be measured at cost in the consolidated financial statements.
A)True
B)False
Answer: False
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Chapter 2: Principles of Consolidation
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48 Flashcards
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Sample Questions
Q1) When a dividend declared by a subsidiary results in an adjustment for impairment of the parent company's investment in subsidiary asset,the following consolidation worksheet adjustment is required:
A) Dr. Impairment loss Investment in Subsidiary Cr. Accumulated Impairment Loss
B) Dr. Accumulated Impairment Loss Cr. Impairment Loss Investment in Subsidiary C) Dr. Impairment Loss Investment in Subsidiary Cr. Investment in Subsidiary D) none of the above.
Answer: B
Q2) Post-acquisition changes in the composition of pre-acquisition equity can be ignored for the purposes of consolidation adjustments.
A)True
B)False
Answer: False
Q3) The investment date and the acquisition date of a subsidiary will always be the same.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Fair Value Adjustments and Tax Effects
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Sample Questions
Q1) What is the accounting treatment for a group where the reporting entity is being sued?
A) Upon consolidation, the unrecorded liability will be recognised at its fair value.
B) No reporting is necessary until the case is settled.
C) Only a footnote in the consolidated financial statements is required.
D) Recognition is appropriate only if a loss is probable.
Answer: A
Q2) A gain on bargain purchase arising in a business combination does not have any deferred tax implications.
A)True
B)False
Answer: True
Q3) The recorded equity of a subsidiary at acquisition will always equal the fair value of the subsidiary's net assets.
A)True
B)False
Answer: False
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Chapter 4: Intra-Group Transactions
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Sample Questions
Q1) Deferred tax assets and liabilities arising from accrual of intragroup interest on loans should be offset as a consolidation adjustment.
A)True
B)False
Q2) Consolidation entries never adjust cash because intragroup transactions do not alter the group's cash position.
A)True
B)False
Q3) P Ltd sold an item of property,plant and equipment to its subsidiary S Ltd on the following basis: cost to P Ltd $24 000.The equipment is three years old and had been depreciated at 10% per annum straight line.Sale price was $20 000.The gain recorded by P Ltd on sale would be:
A) $20 000.
B) $4000.
C) $3200.
D) $0.
Q4) Explain why cash will never be adjusted in consolidation journal entries.
Q5) Explain why it is necessary to adjust unrealised profit in opening inventory on consolidation.
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Chapter 5: Non-Controlling Interest
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Sample Questions
Q1) Where the shareholder's equity of a subsidiary is negative:
A) the NCI will be included as part of the parent interests.
B) the NCI will be shown as a separate amount in the consolidated accounts.
C) the NCI is ignored for consolidation purposes.
D) none of the above.
Q2) Company A owns 40% of Company B and this ownership is deemed to represent control.The non-controlling interest in B is:
A) 40%.
B) 60%.
C) 100%.
D) no non-controlling interest.
Q3) The disclosure of the non-controlling interest proportion of each equity balance in the consolidated financial statements provides useful information on:
A) dividend payment capacity.
B) business activity results.
C) segment activity results.
D) all the above.
Q4) Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?
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Chapter 6: Partly-Owned Subsidiaries: Indirect
Non-Controlling Interest
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Sample Questions
Q1) Discuss the disadvantages of the sequential consolidation method.
Q2) If the parent acquires the child after the child has established a controlling interest in the grandchild,then the acquisitions are referred to as sequential.
A)True
B)False
Q3) Is the proportionate interest goodwill method consistent with not allocating goodwill impairment losses against the indirect NCI?
Q4) In a multiple consolidation,the ownership interests of subsidiaries are determined using:
A) direct ownership interests.
B) indirect ownership interests.
C) both direct and indirect ownership interests.
D) none of the above.
Q5) The ultimate parent-immediate parent-subsidiary description applies to corporate groups involving indirect ownership interests.
A)True
B)False
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Chapter 7: Consolidated Cash Flow Statements
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Sample Questions
Q1) The classification of an item as a cash equivalent means that changes in the balance:
A) will be disclosed in the statement of cash flows.
B) will not be disclosed in the statement of cash flows.
C) may be disclosed at discretion of the entity.
D) none of the above.
Q2) A Ltd acquires 100% of shares of B Ltd for $195 000,financed by an issue of 100 000 x $1.50 shares and $45 000 cash.B Ltd has cash balances of $35 000 at the date of acquisition.Which amount will A Ltd record for cash flow from investing in its consolidated statement of cash flows?
A) ($195 000)
B) ($450 000)
C) ($10 000)
D) ($35 000)
Q3) Insurance proceeds from the destruction of a factory by fire would be classified as:
A) operating cash flow.
B) financing cash flow.
C) investing cash flow.
D) none of the above.
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Page 9
Chapter 8: Accounting for Joint Arrangements
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Sample Questions
Q1) Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting databases is established for the undertaking and each investor contributes cash capital to the undertaking and hold the assets as tenants in common.The intention of the investing companies is to take their proportionate share of the produce of the vineyard to use in their own wineries.The business undertaking is:
A) a joint venture operation because the investors have agreed to a sharing of control and to a sharing of the produce of the vineyard.
B) a joint venture entity because the undertaking has been established as a separate entity in which there is a simple sharing of control.
C) a simple partnership in which two companies operate as partners in a business undertaking.
D) none of the above.
Q2) Discuss the principles applying to the calculation of a gain on the sale of a portion of a jointly controlled operation.
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Page 10
Chapter 9: Accounting for Associates and Joint Ventures: the Equity Method
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Sample Questions
Q1) Which of the following is NOT an indication that an investor has the power to exert significant influence over an investee company?
A) Representation of the investor on the investee's board of directors
B) Participation by the investor in the investee's policy-making processes
C) The investee's technological dependency on the investor involving the investor providing the investee with essential technical information
D) None of the above
Q2) If an investment in an associate entity were to be accounted for using the cost method,the investment is initially recognised at its cost of acquisition and:
A) all dividends declared in the post-acquisition period are treated as a recovery of the investment.
B) if the shares in the associate are traded in an active market, market value increments or decrements are recognised as gains or losses at each reporting date.
C) dividends declared from pre-acquisition profits are deducted from the carrying amount of the investment, even if these dividends are declared subsequent to acquisition.
D) none of the above.
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Page 11
Chapter 10: Translation and Consolidation of Foreign Currency Financial Statements
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Sample Questions
Q1) Cash flows from foreign operations denominated in a foreign currency will normally be translated using:
A) historical rates.
B) average rates.
C) closing rates.
D) none of the above.
Q2) Under current accounting standards,a company may choose between the current rate and temporal methods of translating foreign currency financial statements.
A)True
B)False
Q3) An exchange rate quoted in Australia of AUD1.00 = USD1.05 is an example of:
A) the direct form of exchange rate.
B) the indirect form of exchange rate.
C) neither form.
D) none of the above.
Q4) The term 'foreign currency transaction' refers to a transaction denominated in a currency other than Australian dollars.
A)True
B)False
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Chapter 11: Segment Reporting by Diversified Entities
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Sample Questions
Q1) What are the two characteristics of reliable information?
A) Representational faithfulness and verifiability
B) Timeliness and representational faithfulness
C) Verifiability and relevance
D) Representational faithfulness and relevance
Q2) For purposes of the reliance on a major customer,entities under common control are considered as a single customer,
A)True
B)False
Q3) Operating segments may only be combined if they have similar economic characteristics.
A)True
B)False
Q4) Under current accounting standards,companies are required to report information on geographical segments.
A)True
B)False
Q5) How might management be able to conceal segment information under the 'management approach' to identifying reportable segments?
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