Intermediate Accounting Study
Guide Questions
Course Introduction
Intermediate Accounting provides an in-depth exploration of financial accounting concepts, standards, and practices beyond the introductory level. The course emphasizes the conceptual framework underlying financial reporting, the application of Generally Accepted Accounting Principles (GAAP), and the preparation and analysis of financial statements. Key topics include revenue recognition, measurement of assets and liabilities, equity accounting, and complex transactions such as leases, pensions, and income taxes. Students will also develop analytical skills by interpreting financial information and making informed business decisions, preparing them for advanced studies in accounting and professional certification exams.
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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Q1) The body that oversees the operation of the Auditing and Assurance Standards Board is:
A) The Financial Reporting Council (FRC)
B) ASIC
C) AASB
D) ASX
Answer: A
Q2) Which of the following is/are true concerning the issue of accounting standards in Australia after internationalisation?
A) The AASB adds to proposed international standards material detailing their scope and applicability in Australia
B) The AASB adds material to broaden the content of international standards to cover the not-for-profit sector
C) After issuing an exposure draft for comment and considering the response, the AASB issues an Australian standard equivalent to the IASB standard
D) All of the statements are true
Answer: D
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Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) The correct order for the seven levels of the accounting standard-setting part of the conceptual framework is:
A) standard-setting policy, display, border of discipline, subject, objective, fundamentals, operational
B) fundamentals, border of discipline, operational, subject, objective, display, standard-setting policy
C) border of discipline, subject, objective, fundamentals, operational, display, standard-setting policy
D) subject, objective, fundamentals, border of discipline, operational, display, standard-setting policy
Answer: C
Q2) A major beneficiary from the development of a conceptual framework is expected to be:
A) governments
B) preparers of financial reports
C) accounting standard setters
D) managers
Answer: C
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Page 4
Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Sample Questions
Q1) The constraint(s)on relevant,reliable,material,understandable and comparable information is/are:
A) verifiability
B) timeliness
C) cost/benefit
D) B and C
Answer: C
Q2) The Framework definition of revenue (income)differs in which important aspect from the FASB definition?
A) In some circumstances it includes contributions by owners as revenue
B) It includes a reduction in liabilities as one of the forms that revenue can take
C) It defines revenue as an inflow
D) It does not identify the sources of the revenue
Answer: D
Q3) Explain and discuss three essential characteristics of an asset as defined by the Framework.
Answer: Not Answer
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Page 5
Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) 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
Q2) In the Framework,'probable' means:
A) greater than 50% certainty
B) 50% certainty
C) greater than 75% certainty
D) greater than 95% certainty
Q3) Which statement concerning liabilities is not correct?
A) If a material liability fails the probability test, it may still warrant disclosure in the notes to the financial statements
B) If a material liability cannot be measured reliably, then it should not be recognised in the accounts
C) If the probability that a previously recognised liability will have to be settled falls below 50%, it should still remain in the balance sheet
D) None of the statements is incorrect, i.e., all are correct statements
Page 6
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Chapter 5: The Choice of Accounting Methods
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Sample Questions
Q1) The AASB accounting standard(s)that deal(s)with the choice of accounting policy is/are?
A) AASB 118 and 181
B) AASB 181
C) AASB 118
D) AASB 108
Q2) Explain the meaning of creative accounting and discuss various factors that tend to limit its operation.
Q3) 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
Q4) 'Most creative accounting techniques do not lead to permanent increases in profits and assets and therefore achieve little.' Using at least three specific examples,explain what is meant by this statement and discuss whether or not you agree with it.
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Chapter 6: The Balance Sheet: an Overview
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Q1) The correction of errors relating to prior periods is now covered by:
A) AASB 1034
B) AASB 101
C) AASB 108
D) none of the above
Q2) The current/non-current basis of classifying assets and liabilities in the statement of financial position is based on their:
A) marketability
B) longevity
C) source
D) none of the above
Q3) Current assets,as defined in AASB 101,are those that:
A) are expected to be realised within the normal course of the operating cycle
B) are held primarily for the purpose of being traded
C) are expected to be realised within 12 months after the end of the accounting period
D) any of the above
Q4) Identify and discuss the requirements concerning the classification of liabilities contained in AASB 101.
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8
Chapter 7: Accounting for Current Assets
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Sample Questions
Q1) The justification for the inventory valuation rule,the lower of cost and net realisable value,is:
A) conservatism
B) cost versus benefit
C) reliability
D) materiality
Q2) Assuming prices are decreasing,the first-in-first-out approach to inventory valuation,compared to the average cost approach,will give:
A) a higher profit and a higher closing inventory
B) a higher profit and a lower closing inventory
C) a lower profit and a higher closing inventory
D) a lower profit and a lower closing inventory
Q3) Allowance for doubtful debts is a/an:
A) liability account
B) expense account
C) contra expense account
D) contra asset account
Q4) Explain and discuss the criteria contained in AASB 101 for distinguishing between current and non-current assets.
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Chapter 8: Accounting for Property, plant and Equipment
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Sample Questions
Q1) Under AASB 116,which of the following would normally not be regarded as separate classes of assets?
A) Computer equipment
B) Office desks
C) Motor vehicles
D) None of the above, i.e., all would normally be regarded as separate classes of assets
Q2) Which of these items does AASB 116 apply to?
A) Assets held for sale
B) Biological assets
C) Mineral rights and mineral reserves
D) None of the above
Q3) A subsequent increase in the value of goodwill that has previously been written off as an impairment loss:
A) must not be reversed in subsequent periods
B) must be reversed in the period in which the value has changed
C) is allocated over the other assets in the cash generating unit in proportion to their carrying amounts
D) all of the above
Q4) Explain and discuss how donated assets should be recorded in the accounts.
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Chapter 9: Accounting for Company Income Tax
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Q1) Accounting Profit and Taxable Income can often differ because:
A) a tax deduction is not allowed for bad debts
B) revenue received in advance is not subject to tax
C) general purpose financial reporting and the income tax system have differing objectives
D) the Australian Taxation Office does not recognise depreciation as a legitimate expense
Q2) Discuss the results of empirical research that examines whether tax-effect accounting should continue to be required.
Q3) Accounting standards require disclosure of the amount of:
A) deferred tax expense (or revenue) relating to changes in tax rates or tax laws
B) current tax expense (or revenue)
C) any adjustments for the current tax of prior reporting periods
D) all of the above
Q4) 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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Chapter 10: Accounting for Investments
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Q1) Which of these is not a feature of the pure equity accounting method?
A) A proportionate share of dividends paid by the investee is debited to the bank account and credited to the investment account
B) A proportionate change in after-tax profits of the investee is debited to the investment account and credited to share of net profit of associate
C) A proportionate change in asset revaluations by the investee is debited to the investment account and credited to a revaluation reserve
D) Any difference between the acquisition price and the amount at which the investment is initially recorded in the investor's accounts is recorded as goodwill
Q2) Under AASB 128,which of these factors is likely to suggest the presence of significant influence?
A) Representation on the board of directors of the investee
B) Material transactions between the investor and the investee
C) Interchange of managerial personnel
D) All of the above
Q3) 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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Q1) 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
Q2) The statement concerning the requirements of AASB 138 in relation to goodwill that is incorrect is:
A) it prohibits the recognition of internally generated goodwill
B) it distinguished between identifiable intangible assets and goodwill
C) it requires goodwill to be tested for impairment at least every 5 years
D) none of the requirements is incorrect
Q3) Prior to the first Australian accounting standard on research and development,costs associated with research and development were usually:
A) capitalised
B) expensed and reinstated
C) expensed in the period incurred
D) none of the above
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13
Chapter 12: Accounting for Leases
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Q1) A 'sale-and-leaseback' transaction:
A) can be classified as neither a finance lease nor an operating lease
B) is always classified as a finance lease
C) can be classified as either a finance lease or an operating lease
D) is always classified as an operating lease
Q2) 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.
Q3) 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
Q4) Discuss the implications of the proposal that operating/finance lease distinction be dropped.
Q5) Explain the main similarities and differences between an operating lease and a finance lease,and state how each is treated in the financial statements of a business.
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Chapter 13: Accounting for Employee Benefits
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Q1) Under AASB 119,the liability for annual leave is calculated at:
A) the present value of the estimated future cash outflows to be made in respect of the leave
B) the current pay rate
C) the anticipated pay rate when the leave is expected to be taken
D) none of the above
Q2) There are two approaches to accounting for post-employment benefit costs by employers:
A) the normal and special methods
B) the deferred debit and the deferred credit method
C) the defined benefit method and the defined contribution method
D) the form method and the net-worth method
Q3) In Australia,the attractiveness of salary packaging is being reduced by which of the following factors?
A) Fringe benefits tax which taxes the employer on non-cash benefits paid to the employee
B) The decreasing difference between personal tax rates and the company tax rate
C) Non-cash salary being taxable in the hands of the employee
D) All of the above
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Page 15
Chapter 14: Accounting for Financial Instruments
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Sample Questions
Q1) A buyer of a futures contract:
A) may let the contract expire with no action required
B) has an obligation to buy the underlying asset
C) has a right, but not an obligation, to buy the underlying asset
D) must pay the futures price when the contract is made
Q2) Corine Ltd,a trader bought a December put option for 10 $100 000 10% treasury bonds at a premium of $3.95 on January 1,2010.Year end for Corine is 30 June when the price for a December put option for $100 000 10% treasury bonds is $3.50. What would be the journal entry for 30 June 2010?
A) Dr Loss on options contract \(\quad \$ 4500\)
\(\mathrm { Cr }\) Investment in options contract\(\quad\$ 4500\)
B) \(\begin{array} { l l l }
\text { Dr Loss on options contract } & \$ 450 & \\
\text { Cr Investment in options contract } & & \$ 450 \end{array}\)
C) Dr Investment in options contract \(\quad \$ 4500\)
\(\mathrm { Cr }\) Gain on options contract\(\quad\$ 4500\)
D) Dr Investment in options contract \(\quad \$ 450\)
\(\mathrm { Cr }\) Gain on options contract\(\quad\$ 450\)
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Page 16
Chapter 15: Equity
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Sample Questions
Q1) Whitely Ltd issues 50 000 shares at $4.60 per share.The accounting effect of the issue is:
A) debit cash at bank $230 000, credit share capital $230 000
B) debit applications $230 000, credit share capital $230 000
C) debit cash at bank $50 000, credit share capital $50 000
D) none of the above
Q2) Convertible notes and other securities that are legally classified as debt but which contain elements of equity are known by the term:
A) share options
B) equity instruments
C) derivatives
D) compound financial instruments
Q3) Asset revaluation reserves arise from:
A) application of the Corporations Act and the accounting standards
B) transfers from retained earnings
C) transfers from cash at bank
D) none of the above
Q4) Explain the requirements of AASB 101 as they relate to the presentation and disclosure of equity.
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Chapter 16: The Income Statement
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Q1) The concept of profit that is generally regarded as the most useful in predicting future profits is:
A) the comprehensive income approach
B) the operating-profit approach
C) the all-inclusive approach
D) No difference is seen in the usefulness of the different profit approaches in predicting future profits
Q2) Under AASB 118,which of the following is additional recognition requirements that must be met before revenue arising from the sale of goods can be recognised?
A) The significant risks and rewards of ownership must have been transferred to the buyer
B) The entity retains neither continued managerial involvement to the degree usually associated with ownership nor effective control over the goods sold
C) The costs in respect of the transaction can be measured reliably
D) All of the above
Q3) AASB 101 allows preparers two options in the classification of items for the statement of comprehensive income statements.Discuss.
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18
Chapter 17: The Cash Flow Statement
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Q1) The first institution in Australia to require certain companies to include a funds statement in their published reports was:
A) the Australian Accounting Standards Board
B) the Australian Accounting Research Foundation
C) the Australian Stock Exchange
D) none of the above
Q2) AASB 107 provides for which method of reporting cash flows from operating activities?
A) Either the direct or the indirect method
B) The direct method
C) The indirect method
D) The working capital method
Q3) Discuss the arguments for and against the presentation of the cash flow statement using the indirect approach rather than the direct approach.
Q4) All of these are possible definitions of 'funds' except:
A) working capital
B) investment
C) total resources
D) cash
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Chapter 18: Financial Reporting: Segment Reporting, value
Added Statements, highlights Statements and
Financial Information
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Q1) Reporting by segments of a business is believed to have a number of disadvantages.Which of the following is not likely to be such a disadvantage?
A) Segment information may not be sufficiently reliable
B) The costs to a business of providing segment information may exceed the benefits to investors
C) Providing segment information may assist a business's competitors
D) Investors invest in a whole company and not in its individual segments
Q2) A company reports the following in relation to its latest financial year:
\[\begin{array} { l r }
\text { Net profit } & \$ 12000 \\
\text { Number of ordinary shares issued } & 5000 \\
\text { Number of preference shares issued } & \\
\text { (paying an annual dividend of } 50 \text { cents per share) } & 500
\end{array}\]
The company's basic earnings per share figure is:
A) $2.00
B) $2.20
C) $2.10
D) $2.35
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Chapter 19: Further Financial Reporting Issues
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Q1) 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
Q2) In deciding whether an error or omission is material,it is usually necessary to consider:
A) the size of the error or omission
B) the nature of the account which is the subject of the error or omission
C) both A and B
D) none of the above
Q3) Discuss how modern electronic means of communication,such as e-mail and the Internet,might assist continuous reporting and interim reporting requirements.Are there any possible disadvantages in using such electronic means of communication?
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Chapter 20: Accounting for the Extractive Industries
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Q1) Which of the following statements is correct? The expense (costs written-off)method of accounting for exploration and evaluation costs in the extractive industries: A) is inconsistent with the framework of accounting B) is likely to be accepted for income tax purposes C) is simple and conservative D) all of the above are correct
Q2) 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) AASB 6 is an activity based standard; as such it does not fully cover other areas of extractive industries.Make a list and briefly explain the other relevant standards that a mining company has to consider in producing its financial statements under the new regime.
Q4) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
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Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) Real estate assets owned by a business should be classified:
A) as inventories
B) as either inventories or non-current assets depending on the purpose(s) for which they are held
C) in a separate classification for real estate only
D) as non-current assets
Q2) Where possible when allocating the costs carried forward to individual components of a property development the following method should be used:
A) specific identification method
B) area method
C) value method
D) none of the above
Q3) 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.
Q4) 'To recognise assets and liabilities when a firm construction contract is signed would be inconsistent with the requirements of AASB 111'.Discuss this statement in reference to the framework.
23
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Chapter 22: Accounting for Agricultural Activity
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Q1) 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
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 activity should:
A) sometimes be classified as non-current assets
B) always be classified as current assets
C) always be classified as non-current assets
D) always be classified as inventories
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24
Chapter 23: Accounting for Superannuation Plans
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Q1) 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'.
Q2) The inclusion of a report of the trustees of a superannuation plan is:
A) required by AAS 25
B) the same as an actuarial report
C) recommended by the ASFA
D) not relevant for a self-managed plan
Q3) The Balance Sheet of the Top Uni Staff Superannuation Plan included the following: Net assets available to pay benefits \(\quad \$10500000\)
Represented by:
Liability for accrued benefitsAllocated to members accounts \(\quad \$ 10000000\)
Not yet allocated\(\quad\underline { 500000 }\)
This indicates that the fund is probably a:
A) defined contribution fund
B) defined benefit fund
C) either of the above
D) externally managed fund
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Page 25
Chapter 24: Accounting for Financial Institutions
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Q1) 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
Q2) 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
Q3) Under the requirements of Australian Accounting Standard AASB 1038 'Life Insurance Contracts',the assets of a life insurer must be measured at:
A) net present value
B) fair value
C) historical cost
D) replacement cost
Q4) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
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Chapter 25: Financial Reporting in the Public Sector
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Q1) When a Government Trading Enterprise is restructured into a company and at least some shares are held by private investors it is said to be:
A) corporatised
B) privatised
C) publicised
D) globalised
Q2) Rowles (1992)concludes that there is no difference between investments such as in roads and drains made by public sector entities and assets such as blast furnaces made by the private sector.Discuss this view in the light of accounting for infrastructure and heritage assets.
Q3) A Government Trading Enterprise is 'corporatised' when it is restructured into a company and:
A) special legislation controls its activities
B) all the shares are held by the government
C) all the shares are held by private investors
D) some of the shares are held by the government and some are held by private investors
Q4) Compare government financial statistics with the general purpose GAAP reporting models.
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) 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) International accounting standards are applicable:
A) only to for-profit entities in the private sector
B) to for-profit and not-for-profit entities and government business enterprises
C) to for-profit and not-for-profit entities but not to government business enterprises
D) to for-profit entities including government business enterprises
Q3) Describe and explain the strategies adopted by the AASB in order to achieve the objective of international harmonisation of accounting standards in Australia.
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Page 28
Chapter 27: Foreign Currency Translation
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Q1) There are four methods suggested for translating foreign currency financial statements.Identify these four methods and explain the translation methods used under each.
Q2) The 'spot' rate of exchange for foreign currencies is:
A) the rate at which currencies can be exchanged in a particular place (e.g., in Sydney or in New York)
B) the rate of exchange between the Australian dollar and the US dollar
C) the rate at which currencies can be exchanged on the New York foreign exchange market
D) the rate at which currencies can be exchanged immediately
Q3) A way in which a foreign currency transaction can be hedged is:
A) Buy (or sell) foreign currency at the date of the initial transaction
B) Enter into a forward rate agreement to fix the cost of the currency at a fixed date in the future
C) Enter into a transaction which neutralises the risk (e.g., have accounts receivable and accounts payable in the same currency with the same payment dates)
D) All of the above
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Chapter 28: Accounting for Corporate Social Responsibilities
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Source URL: https://quizplus.com/quiz/71413
Sample Questions
Q1) The Australian government ratified the Kyoto Protocol on:
A) 3 December 2007
B) 1 January 2005
C) 11 December 1997
D) 16 February 2005
Q2) The most common approach adopted by Australian corporations in accounting for corporate social responsibilities is:
A) descriptive performance reporting
B) quantitative reporting
C) full cost reporting
D) asset valuation approach
Q3) The 'social performance' aspect of sustainability (or triple-bottom line)reporting is most likely to include details of:
A) total wages and salaries paid
B) investments in employee health and safety
C) steps taken to reduce greenhouse gas emissions
D) all of the above
Q4) Discuss the basic characteristics of the Carbon Pricing Mechanism (CPM).In your answer,explain the cap and trade scheme.
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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) Which of the following is not included as a fundamental principle of professional conduct in the Code of Ethics for Professional Accountants?
A) Confidentiality
B) Accuracy
C) Independence
D) Objectivity
Q2) 'Society-imposed costs' of unethical behaviour include:
A) destruction of professional reputation
B) penalties imposed through legal proceedings
C) penalties imposed by disciplinary proceedings by a relevant professional body
D) all of the above
Q3) Ethical parochialism:
A) assumes that ethical behaviour should protect the individuals belonging to the 'in group'
B) suggests that the behaviour of individuals should be constrained by the law and the conventions of fair play
C) is evidenced when individuals seek to maximise their own utility
D) suggests that ethical behaviour should be concerned with the good of all humankind and that individuals are all of equal value
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