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Question 1
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Differential reporting is based on:

Select one:
a. the difference between the ability of shareholders in 'small' and those in 'large'
companies to request information to satisfy their specific needs.
b. none of the given answers.
c. small and large proprietary companies having the same requirements to comply
with accounting standards in the preparation of financial reports.
d. the burden of additional reporting for some organisations in situations where

there were questionable benefits to report preparers.
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The correct answer is: the difference between the ability of shareholders in 'small'
and those in 'large' companies to request information to satisfy their specific needs.
Question 2
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An argument to support the requirement that all companies over a certain size
should adhere to accounting standards is:
Select one:
a. The Australian Securities and Investment Commission should be responsible only
for large enterprises.
b. Larger companies have greater political and economic importance and this
increases the demand for financial information about the entity by external users.
c. The conceptual framework and accounting standards are designed for larger
enterprises.
d. Larger companies can afford to pay for complex accounting systems and the
experts necessary to design and maintain them.
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The correct answer is: Larger companies have greater political and economic
importance and this increases the demand for financial information about the entity
by external users.
Question 3
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A general purpose financial statements means:

Select one:
a. a financial report intended to meet the information needs of preparers.
b. a financial report prepared by the company for the needs of any user.
c. a financial report intended to meet the information needs of users who are able
to command the preparation of reports to satisfy all of their information needs.
d. a financial report intended to meet the information needs of users who are
unable to command the preparation of special purpose reports.
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The correct answer is: a financial report intended to meet the information needs of
users who are unable to command the preparation of special purpose reports.
Question 4
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In the absence of regulation, for auditing to be an effective strategy for reducing

the costs of attracting funds, the auditor must:
Select one:
a. have been auditing the company for at least the last five years.
b. belong to one of the major ('Big 4') global accounting firms.
c. be perceived to be truly independent and the accounting methods employed
must be sufficiently well-defined.
d. be formally registered under the Registered Auditors Act 1998.
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The correct answer is: be perceived to be truly independent and the accounting
methods employed must be sufficiently well-defined.
Question 5
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Which body reviews, on a timely basis within the context of existing International
Accounting Standard (IASB) and the IASB framework, accounting issues that are
likely to receive divergent or unacceptable treatment in the absence of authoritative
guidance?
Select one:
a. International Financial Reporting Interpretations Committee (IFRIC).
b. Urgent Issues Group (UIG).
c. International Interpretations and Issues Group (IIIG).
d. International Accounting Standards Board (IASB).
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The correct answer is: International Financial Reporting Interpretations Committee

(IFRIC).
Question 6
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To determine whether or not information is material, paragraph 9 of AASB 108

indicates that it is material if its omission, misstatement or non-disclosure has the
potential, individually or collectively to:
Select one:
a. be greater than 1% of the total assets of the entity.
b. affect the discharge of accountability by the governing body of the entity.
c. influence management to make decisions that will affect users of the financial
report.
d. present the financial report in a 'true and fair' manner.
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The correct answer is: affect the discharge of accountability by the governing body
of the entity.
Question 7
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AASB are initials that stand for:
Select one:
a. Accounting & Auditing Supervision Board.
b. Australian Accounting Standards Bureau.
c. Accounting & Auditing Standards Bureau.
d. Australian Accounting Standards Board.
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The correct answer is: Australian Accounting Standards Board.
Question 8
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Which of the following statement was not identified as a benefit of international

harmonisation?
Select one:
a. It was likely to increase the comparability of financial reports prepared in
different countries.
b. It was likely to reduce the reporting costs for Australia's not-for-profit entities
and local governments.
c. It was likely to improve the quality of financial reporting in Australia to best
international practice.
d. It was likely to allow more meaningful comparisons of the financial performance
and financial position of Australian and foreign public sector reporting entities.
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The correct answer is: It was likely to reduce the reporting costs for Australia's not-
for-profit entities and local governments.
Question 9
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The Corporations Act requires which of the following statements to be included in a

Directors' Declaration?
Select one:
a. Whether in their opinion the financial statements comply with accounting
standards and the Corporations Act.
b. All of the given answers should be included.
c. Whether in their opinion the financial statements give a true and fair view of the
financial position and financial performance of the entity.
d. Whether or not in their opinion, when the declaration was made, there were
reasonable grounds to believe that the company would be able to pay its debts as
they become due.
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The correct answer is: All of the given answers should be included.
Question 10
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The International Accounting Standards Board (IASB) website explains how the
IASB believes its relationship with national standards-setters should be conducted.
It notes that:
Select one:
a. The IASB will inform national standard-setters of directions they should take,
projects they should undertake and the outcomes that are expected of them.
b. The IASB expects national standard-setters to develop all standards of a
domestic nature pertaining to the public and non-for-profit sectors, as its standards
do not apply to these areas.
c. National standard-setters should cede all responsibility for matters pertaining to
accounting standards to the IASB, but retain responsibility for making
interpretations on all matters of uncertainty.
d. There should be close coordination between the due process of the IASB and the
process of national standard-setters.
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The correct answer is: There should be close coordination between the due process
of the IASB and the process of national standard-setters.
Question 11
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In accordance with AASB 101 Presentation of Financial Statements, a financial

report comprises:
Select one:
a. a statement of financial position, an income statement, a statement of changes
in equity, a cash flow statement and notes to the accounts.
b. a statement of financial position, an income statement and cash flow statement.
c. a statement of financial position, an income statement, a statement of changes
in equity and a cash flow statement.
d. a statement of financial position, an income statement, a cash flow statement

and notes to the accounts.
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The correct answer is: a statement of financial position, an income statement, a

statement of changes in equity, a cash flow statement and notes to the accounts.
Question 12
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The only body with the power to veto a standard recommended by the AASB is:
Select one:
a. the Commonwealth Parliament.
b. the Urgent Issues Group.
c. the Financial Reporting Council.
d. the Australian Accounting Standards Review Board.
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The correct answer is: the Commonwealth Parliament.
Question 13
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Arguments against the regulation of accounting information include:

Select one:
a. Companies will be motivated to disclose good news but not disclose bad news if
they are not forced to make certain mandated disclosures (the 'lemons' argument).
b. Managers of the organisation are in the best place to determine what information
should be produced to increase the confidence of external stakeholders.
c. By making so many choices of accounting methods available under the
standards, the efficiency with which the information is provided will be enhanced.
d. Mandated disclosures are cheap to provide and by their nature will devalue the
worth of the information being provided.
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The correct answer is: Managers of the organisation are in the best place to
determine what information should be produced to increase the confidence of
external stakeholders.
Question 14
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Responsibility for the preparation of the financial information of a company rests

with:
Select one:
a. the auditors and the board of directors jointly.
b. management.
c. the auditors.
d. the auditors and management jointly.
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The correct answer is: management.
Question 15
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What are two key ways management accounting is different from financial
accounting?
Select one:
a. Management accounting provides special-purpose information to people external
to the firm and it is highly regulated.
b. Management accounting focuses on providing information for internal users and
it is largely unregulated.
c. Management accounting provides information for the day-to-day running of an
organisation and it is governed by the requirements of ASIC.
d. Management accounting is focused on providing information to shareholders who

wish to have input into the management of the organisation and it is regulated by
generally accepted accounting principles.
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The correct answer is: Management accounting focuses on providing information for
internal users and it is largely unregulated.
Question 16
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Some of the perceived barriers to the harmonisation process (for the harmonisation
of accounting standards globally) include:
Select one:
a. different legal systems.
b. different cultures.
c. all of the given answers.
d. different business environments.
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The correct answer is: all of the given answers.
Question 17
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The idea that accounting information can be used by people without paying for it,
and pass it on, defines accounting information as being:
Select one:
a. a public good.
b. worthless.
c. a free good.
d. a cheap good.
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The correct answer is: a public good.
Question 18
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Which of the following statement(s) is/are true with respect to the differences
between IFRS and US generally accepted accounting principles (GAAP)?
Select one:
a. There are no differences between IFRS and US GAAP.
b. There are only slight differences between IFRS and US GAAP and there was a
decision made by both the IASB and the US Financial Accounting Standards Board
(FASB) to pursue an intensification of the convergence program designed to bring a
number of short-term fixes between the two sets of accounting standards.
c. There was a decision made by both the IASB and the US Financial Accounting
Standards Board (FASB) to pursue an intensification of the convergence program
designed to bring a number of short-term fixes between the two sets of accounting
standards.
d. There are only slight differences between IFRS and US GAAP.
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The correct answer is: There was a decision made by both the IASB and the US
Financial Accounting Standards Board (FASB) to pursue an intensification of the
convergence program designed to bring a number of short-term fixes between the
two sets of accounting standards.
Question 19
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What option(s) does a company have when directors are of the view that
compliance with accounting standards does not generate a 'true and fair view'
financial statements?
Select one:
a. All of the given answers are correct.
b. Directors may exercise the 'true and fair view override'.
c. Directors may elect not to comply with the standard.
d. Directors may disclose the standard in question, the nature of conflict and
adjustments made.
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The correct answer is: Directors may disclose the standard in question, the nature
of conflict and adjustments made.
Question 20
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Which of the following most accurately describes the process of issuing an IASB
standard?
Select one:
a. An advisory committee must be established to give advice on the project; this
will be followed by the development and publication of Discussion Documents. After
receiving public feedback, an Exposure Draft is required to be issued for further
comment. A final IFRS is then issued based on previous feedback along with Basis
for Conclusion.
b. Discussion Documents are developed and published for public comment, then an
advisory committee must be established to give advice on the project. After
receiving public feedback, an Exposure Draft may then be issued for further
for Conclusion.
c. An advisory committee may be established to give advice on the project and
develop an Exposure Draft, which will be followed by the development and
publication of Discussion Documents. After receiving public feedback, a final IFRS is
then issued along with Basis for Conclusion.
d. An advisory committee may be established to give advice on the project; this
may be followed by the development and publication of Discussion Documents.
After receiving public feedback, an Exposure Draft may then be issued for further
for Conclusion.
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The correct answer is: An advisory committee may be established to give advice on
the project; this may be followed by the development and publication of Discussion
Documents. After receiving public feedback, an Exposure Draft may then be issued
for further comment. A final IFRS is then issued based on previous feedback along
with Basis for Conclusion.
Question 1
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The accountant of Broken Bay Ltd decided to retain the historical cost of the entity's
intangible assets because it was difficult to obtain fair value of these assets. This
action is consistent with ____________.

Select one:
a. accrual accounting
b. balancing of relevance and faithful representation
c. substance over form
d. cash accounting
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The correct answer is: balancing of relevance and faithful representation
Question 2
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Which of the following actions are consistent with the Doctrine of Conservatism?
Select one:
a. Adoption of accelerated depreciation method to reduce profits
b. Careful assessment of doubtful debts
c. Deliberate overstatement of expenses to reduce profits
d. Excessive provisions for warranty expenses
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The correct answer is: Careful assessment of doubtful debts
Question 3
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A central goal in establishing a conceptual framework of accounting will be to obtain

general consensus on
Select one:
a. the qualitative characteristics that financial information should possess.
b. the scope and objectives of financial reporting and the qualitative characteristics
that financial information should possess
c. what the elements of financial reporting are, including agreement on the
characteristics and recognition criteria for assets, liabilities, income, expenses and
equity.
d. the scope and objectives of financial reporting.
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The correct answer is: the scope and objectives of financial reporting and the
qualitative characteristics that financial information should possess
Question 4
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The IASB Conceptual Framework for Financial Reporting (as released in 2010),
requires that general purpose financial reports disclose information that is
Select one:
a. relevant to the assessment of financial and social performance, financial position
and funding and investing, and includes information about compliance
b. relevant to the assessment of performance, financial position and cash flows.
c. relevant to the assessment of profit, funding and investing, and compliance
d. relevant to the assessment of performance, financial position and funding and

investing, including information about compliance
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The correct answer is: relevant to the assessment of performance, financial position
and cash flows.
Question 5
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The IASB conceptual framework adopts which approach to determining profits

Select one:
a. Asset/liability approach
b. Cash basis approach
c. Matching principle approach
d. Revenue/expense approach
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The correct answer is: Asset/liability approach
Question 6
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The framework outlines two underlying assumptions of financial statements. These

are
Select one:
a. cash basis of accounting and insolvency assumption
b. historical cost accounting and limited life concept.

c. fair value basis and insolvency assumption
d. accrual basis of accounting and going concern assumption
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The correct answer is: accrual basis of accounting and going concern assumption
Question 7
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Identify the appropriate qualitative characteristic employed in the following

information
Select one:
a. faithful representation, relevance, consistency
b. faithful representation, relevance, comparability
c. relevance, faithful representation, consistency
d. relevance, faithful representation, comparability
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The correct answer is: relevance, faithful representation, comparability
Question 8
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Which of the following statement(s) is/are true of general purpose financial reports?
Select one:
a. General purpose financial reports should be prepared by all reporting entities and
general purpose financial reports are reports that comply with statements of
accounting concepts and accounting standards
b. General purpose financial reports are reports that comply with statements of
accounting concepts and accounting standards
c. General purpose financial reports should be prepared by all reporting entities
d. General purpose financial reports are intended to meet the information needs
common to users who are able to command the preparation of reports
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The correct answer is: General purpose financial reports should be prepared by all
reporting entities and general purpose financial reports are reports that comply with
statements of accounting concepts and accounting standards
Question 9
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When preparing financial reports, 'users are assumed to have a reasonable

knowledge of the business and economic activities and accounting and a willingness
to study the information with reasonable diligence'. This statement is consistent
with the qualitative characteristic of:
Select one:
a. materiality
b. understandability
c. faithful representation.
d. comparability
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The correct answer is: understandability
Question 10
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Which of the following actions best describes the qualitative characteristic

'relevance'?
Select one:
a. GEP Ltd did not revalue its intangible assets because it was difficult to obtain the
fair value of the assets
b. The financial report of KMC Ltd was audited by one of the Big Four accounting
firms
c. MCB Ltd and DGC Ltd both use accelerated depreciation method
d. DGC omitted a sales transaction equal to 10.5% of its accounts receivable
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The correct answer is: DGC omitted a sales transaction equal to 10.5% of its
accounts receivable
3
Question 1
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Accounts that make up owners' equity may include

Select one:
a. preference shares
b. preference shares and general reserves
c. general reserves
d. debentures
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The correct answer is: preference shares and general reserves
Question 2
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The process for issuing shares is that

Select one:
a. applications are received for the issue of shares and an offer of shares is made.
Applicants contribute capital that is returned to them if their application is
unsuccessful when the shares are assigned
b. they are offered for sale, allotments are received and an assignment made.
Monies received on allotment must be held in trust until the assignment is made
c. a notice of intention to purchase shares is registered with the stock exchange,
which the company receives. The company then offers shares. The applicant may
then be allotted shares and at that point must make the cash contribution.
d. they are offered for sale, applications are received and an allotment made.
Monies received on application must be held in trust until the allotment is made
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The correct answer is: they are offered for sale, applications are received and an
allotment made. Monies received on application must be held in trust until the
allotment is made
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Holders of ordinary shares

Select one:
a. are assured of dividends each year.
b. will always receive a dividend if the company has made a profit in that financial
year
c. may not receive a cash dividend each year but the dividend will accrue and
eventually be paid
d. receive dividends at the discretion of the board
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The correct answer is: receive dividends at the discretion of the board
Question 4
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When shares are allotted, or a call made on them, allotment and call accounts are
created respectively. What is the nature of these accounts and how are they to be
disclosed in the financial statements?
Select one:
a. The accounts are similar to an account receivable and are disclosed in the
statement of financial position as a reduction against share capital
b. The accounts are similar to a future income benefit and are to be separately
disclosed as assets in the statement of financial position
c. The accounts are similar in nature to an account receivable and are to be
disclosed in the statement of financial position as a current asset
d. The accounts are in the nature of a deferred income and are disclosed as a
provision for future cash inflows in the statement of financial position
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The correct answer is: The accounts are similar to an account receivable and are
disclosed in the statement of financial position as a reduction against share capital
Question 5
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Fraser Ltd issued 10 million shares at a price of $3 on 1 July 2012. The subscribers
are required to pay $1 on application, $1 on allotment and the balance on call to be
announced at a later date. The share issue was oversubscribed by 2 million shares.
On 1 August 2012 the shares were allotted to all subscribers on a pro rata basis.
What is the balance of the 'allotment account' and 'share capital' for this share
issue on 1 August 2012, respectively?
Select one:
a. $10 million; $20 million
b. $8 million; $30 million
c. $8 million; $20 million
d. $10 million; $30 million
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The correct answer is: $8 million; $20 million
Question 6
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In the case of a share issue being oversubscribed, excess application monies

Select one:
a. must be placed in a trust account until a refund is requested by applicants
b. must be recorded as revenue in the current financial period
c. may be used to reduce future amounts owing on allotment if the shares are
issued on a pro rata basis
d. will always be refunded to applicants
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The correct answer is: may be used to reduce future amounts owing on allotment if
the shares are issued on a pro rata basis
Question 7
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A public issue of shares involves

Select one:
a. compiling and then issuing a prospectus that outlines the details of the share
issue so those interested can make an informed decision
b. only issuing a limited number of shares to ensure there is sufficient demand for
a full subscription
c. issuing ordinary shares to all members of the public who are interested
d. making the general public aware that shares are available for sale at a set price
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The correct answer is: compiling and then issuing a prospectus that outlines the
details of the share issue so those interested can make an informed decision
Question 8
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Preference shares are often considered to be closer to debt as they

Select one:
a. may be issued with the condition that they are redeemable by the company in
the future
b. may be able to be converted into ordinary shares at a specific date in the future,
indicating they are a liability until that time
c. may guarantee a regular or cumulative payment, similar to interest and may be
able to be converted into ordinary shares at a specific date in the future, indicating
they are a liability until that time.
d. may guarantee a regular or cumulative payment, similar to interest
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The correct answer is: may guarantee a regular or cumulative payment, similar to
interest
Question 9
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A company may elect to issues its shares at any price, which will depend on
Select one:
a. the last sales price for the company's shares before the new issue
b. the minimum price that has been paid for the shares over the last reporting
period
c. the amount specified in legislation at which all Australian companies were
required to issue shares
d. the market demand
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The correct answer is: the market demand
Question 10
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Share capital
Select one:
a. may relate to one or several classes of shares
b. may be calculated by subtracting liabilities from assets
c. represents the amount shareholders are guaranteed to receive if the company is
wound up
d. relates to one class of shares, with the remaining equity recorded as reserves or
retained profits
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The correct answer is: may relate to one or several classes of shares
Question 1
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When constructing an item of property, plant and equipment, which of the following
conditions must be met, for a borrowing cost to be capitalised at the
commencement date?
Select one:
a. Expenditure was necessary to prepare the asset for use
b. Borrowing costs were incurred
c. Expenditure was incurred for the asset
d. All of the given answers are correct
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The correct answer is: Expenditure was necessary to prepare the asset for use
Question 2
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Troy Ltd donated a motor vehicle to Odyssey Ltd. In Troy Ltd's books they will
include in the donation journal entry:
Select one:
a. recognises an asset and an income
b. recognise a liability
c. recognise an expense
d. recognise an income
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The correct answer is: recognise an expense
Question 3
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Where the entity presents current assets separately from non-current assets and
current liabilities separately from non-current liabilities, what disclosure is the entity
required to make under AASB 101?
Select one:
a. The length of its operating cycle if it has clearly been identified as being greater
than 12 months
b. A list of the assets and liabilities in the order of their liquidity
c. The net amount of working capital
d. The reason for selecting that style of presentation
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The correct answer is: The length of its operating cycle if it has clearly been
identified as being greater than 12 months
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According to the framework an asset should have a number of characteristics,

including
Select one:
a. it must be expected to provide future economic benefits to the entity
b. the future economic benefits must be very likely to eventuate
c. it must be owned by the entity
d. the transaction giving rise to the ownership must have already occurred
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The correct answer is: it must be expected to provide future economic benefits to
the entity
Question 5
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If it is not probable that expenditure will generate future benefits, the accounting
treatment should be
Select one:
a. to expense it
b. to treat it as a deferred asset
c. to treat it as unearned revenue
d. to amortise it over a period of no more than two operating cycles
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The correct answer is: to expense it
Question 6
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AASB 101 requires, as a minimum, certain line items to be included on the face of
the statement of financial position. Additional line items may be disclosed based on
an assessment of
Select one:
a. the amounts, nature and timing of liabilities
b. the nature and liquidity of assets
c. all of the given answers
d. the functions of the assets within the entity
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The correct answer is: all of the given answers
Question 7
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Certain classes of property, plant and equipment, for example, aircraft, might
comprise a number of individual component parts. How does AASB 116 paragraph
43 require these components to be accounted for?
Select one:
a. Only one depreciation rate can be used for the asset
b. Each component with a significant cost must be depreciated separately
c. The components can be measured as one asset
d. There is a prescribed unit of measurement for recognition that must be followed.
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The correct answer is: Each component with a significant cost must be depreciated
separately
Question 8
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Applying the asset recognition criteria, which of the following accounting treatments
are incorrect?
Select one:
a. Monthly servicing of the photocopier was capitalised
b. Replacement of a minor component part of the photocopier was expensed
c. Transfer duties were included in the cost of acquisition of the photocopier
d. Monthly servicing of the photocopier was expensed
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The correct answer is: Monthly servicing of the photocopier was capitalised
Question 9
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The class of assets that is to be valued at lower than cost or net realisable value is
Select one:
a. inventories
b. self-generating and regenerating assets
c. debtors
d. non-current assets
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The correct answer is: inventories
Question 10
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If an asset's 'value in use' exceeds its market value then:

Select one:
a. it would be expected that the entity would dispose of the asset immediately
b. an entity should adjust the current carrying amount of the asset to book value.
c. it would be expected that the entity would retain the asset
d. an impairment loss will need to be recorded
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The correct answer is: it would be expected that the entity would retain the asset
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What issues need to be addressed to determine how to allocate the cost of an asset
Select one:
a. The depreciation method, the probable future benefit and the years to
obsolescence.
b. The probable future benefit, the depreciation method and the depreciable base
c. The depreciable base, its useful life and the method of cost apportionment
d. The cost of the asset, its residual value and the method of cost apportionment
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The correct answer is: The depreciable base, its useful life and the method of cost
apportionment
Question 2
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Where an asset is revalued, the treatment of depreciation is to

Select one:
a. recalculate and charge it to the income statement based on the revalued amount
and the original residual value
b. recalculate and charge it to the income statement based on the revalued amount
for the asset and the revalued residual value
c. charge the original amount of depreciation to the income statement and transfer
any change in value to the asset revaluation reserve
d. charge the original amount of depreciation to the income statement and
calculate the new depreciation based on the revalued amount and treat it as a
special item
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The correct answer is: recalculate and charge it to the income statement based on
the revalued amount for the asset and the revalued residual value
Question 3
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Assets should be depreciated from

Select one:
a. the date the asset is paid for until it is disposed of.
b. the date the asset is ordered
c. the date the asset is delivered to the premises until it is no longer in use.
d. the date the asset is first put into use or held ready for use
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The correct answer is: the date the asset is first put into use or held ready for use
Question 4
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Identifiable intangible assets are those intangible assets that
Select one:
a. have an unlimited life
b. can have a value placed on them separately from other assets of the entity
c. cannot be separately sold
d. have been purchased by the entity from external parties
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The correct answer is: can have a value placed on them separately from other
assets of the entity
Question 5
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Examples of elements of a business that commonly make up goodwill are

Select one:
a. research and development
b. trademarks and brand names
c. established reputation and loyal customers
d. patents and licences
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The correct answer is: established reputation and loyal customers
Question 6
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Glass 4 Windows is involved in a research and development project to create a

filtering window that removes the need for curtains. For the current year ended 30
June 2011 expenditure on the project is as follows:
Research $235,000
Development $350,000
The window is expected to earn revenues of $70 000 per year for the 10 years
commencing 1 July 2011. Assuming straight-line amortisation, how much of the
research and development cost should be expensed this period and what amount
should be amortised in the year ended 30 June 2014?
Select one:
a. Expensed in 2011: $235 000; amortisation in 2014: $28 000
b. Expensed in 2011: $58 500; amortisation in 2014: $58 500
c. Expensed in 2011: $235 000; amortisation in 2014: $35 000
d. Expensed in 2011: $350 000; amortisation in 2014: $23 500
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The correct answer is: Expensed in 2011: $235 000; amortisation in 2014: $35 000
Question 7
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Tantrax Ltd has just purchased a piece of equipment for $45 000. It is expected to
operate at its normal output level for 20 years, but the product it is used to
manufacture is expected to be marketable only for the next 13 years. The expected
salvage values are $5000 after 20 years and $8000 after 13 years. The equipment
is expected to generate output consistently over its life. What depreciation should
be charged in each of the first three years of the equipment's life?
Select one:
a. Year 1: $2846.15, Year 2: $2846.15, Year 3: $2846.15
b. Year 1: $5285.71, Year 2: $4879.12, Year 3: $4472.53
c. Year 1: $3461.54, Year 2: $3461.54, Year 3: $3461.54
d. Year 1: $1850, Year 2: $1850, Year 3: $1850
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The correct answer is: Year 1: $2846.15, Year 2: $2846.15, Year 3: $2846.15
Question 8
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Super Industries purchased a new vehicle on 1 May for $28 000. Upon delivery the
vehicle required a new two-way radio to be installed before it could be used. This
installation was completed on 30 June. Assuming a residual value of $4000 and a
declining balance rate of 20 per cent, calculate the depreciation expense recorded
at the end of the first two financial years since purchase. (Financial Year ends on 30
June, round to the nearest dollar.)
Select one:
a. $0; $5600
b. $4800; $3840
c. $5600; $4480
d. $933; $5413
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The correct answer is: $0; $5600
Question 9
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Precious Gems Co purchased a diamond-cutting machine at a cost of $58 000. They

bought it at a discount from the recommended price of $67 000 because of a drop
in the demand for diamonds around that time. There were additional costs of $12
000 to get the machine operational. It was installed on 30 June 2007, but the
machine was not used for 2 years. The operational life of the machine is expected
to be 10 years at the end of which its salvage value is estimated to be $5000. On
30 June 2012, the machine was upgraded to allow a more sophisticated range of
cutting styles to be used. The addition to the cutting machine cost $10 000, has an
estimated life of 9 years and can be used on other machines. The addition is
expected to have a nil salvage value. The machine and the addition are expected to
generate economic benefits evenly over their lives. What is the depreciation
expense for the diamond-cutting machine and addition for the years ended 30 June
2008; 30 June 2013; 30 June 2020 (rounded to the nearest dollar)?
Select one:
a. $5417; $6527; $1111
b. $0; $7611; $1111
c. $6500; $7929; $1429
d. $0; $6829; $1429
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The correct answer is: $5417; $6527; $1111
Question 10
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Which of the following statements is correct with respect to intangible assets?

Select one:
a. Internally generated publishing titles may be revalued if fair value is determined
by reference to an active market
b. Internally generated brands are not recognised as intangible assets because
expenditures in these assets are not distinguishable from the cost of developing the
business as a whole
c. Internally generated brands are recognised as intangible assets because
expenditures in these assets are not distinguishable from the cost of developing the
business as a whole.
d. Purchased goodwill should be amortised over a period of 20 years
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The correct answer is: Internally generated brands are not recognised as intangible
assets because expenditures in these assets are not distinguishable from the cost of
developing the business as a whole
Question 1
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Kensington Ltd decides to lease some equipment from Piccadilly Ltd on the
following terms:
Duration of lease 15 years
Life of the leased asset 17 years
Unguaranteed residual $5 000
Lease payment $6 000 at the inception
Annual lease payment (in arrears) $4 500 per year (15 payments)
If the interest rate implicit in the lease is 8%, what is the fair value of the
equipment at the inception of the lease (rounded to the nearest dollar)?
Select one:
a. $46 094
b. $40 094
c. $48 399
d. $44 518
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The correct answer is: $46 094
Question 2
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The term 'bargain purchase option' is not used explicitly in AASB 117 but is
described as
Select one:
a. the option to purchase the leased asset for significantly less than its cost at the
date the option becomes exercisable, for it to be reasonably certain at the inception
of the lease, that the option will be exercised
b. the option to purchase the asset at a price that is expected to be sufficiently
lower that the fair value at the date the option becomes exercisable, for it to be
reasonably certain at the inception of the lease, that the option will be exercised
and being in place when the lessee is guaranteed to undertake the option at the
end of the lease.
c. the exercise price of a purchase option if the lessee is reasonably certain to
exercise that option.
d. being in place when the lessee is guaranteed to undertake the option at the end
of the lease
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The correct answer is: the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option.
Question 3
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Minimum lease payments include:

Select one:
a. any rentals paid to reimburse the lessor for executory costs
b. any bargain purchase option amount.
c. unguaranteed residuals.
d. contingent rentals
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The correct answer is: any bargain purchase option amount.
Question 4
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An operating lease under the former AASB 117 was one in which:
Select one:
a. the risks and benefits of ownership reside with the lessor
b. the risks and benefits of ownership reside with the lessor and the lessee is
required to maintain the leased asset according to an agreed maintenance
schedule.
c. the lessee agrees to maintain the operating capability of the asset to a level
specified by the lessor
d. the lessee is required to maintain the leased asset according to an agreed

maintenance schedule
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The correct answer is: the risks and benefits of ownership reside with the lessor
Question 5
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The amount of a lease receivable recorded by the lessor for a direct finance lease
should equal at the beginning of the lease term
Select one:
a. the aggregate of the present value of the minimum lease payments and the
present value of any unguaranteed residual value expected to accrue to the benefit
of the lessor at the end of the lease term. Any initial direct costs should also be
included in the lease receivable
b. the aggregate of the present value of the minimum lease payments and the
present value of any guaranteed residual value expected to accrue to the benefit of
the lessor at the end of the lease term, plus any initial direct costs.
c. the aggregate of the present value of the total lease payments and the present
value of any guaranteed residual value expected to accrue to the benefit of the
lessor at the end of the lease term
d. the aggregate of the present value of the minimum lease and executory
payments and the present value of any unguaranteed residual value expected to
accrue to the benefit of the lessor at the end of the lease term
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The correct answer is: the aggregate of the present value of the minimum lease
payments and the present value of any unguaranteed residual value expected to
accrue to the benefit of the lessor at the end of the lease term. Any initial direct
costs should also be included in the lease receivable
Question 6
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The rental payments made during the term of a lease:

Select one:
a. should be considered as a payment of principal (reduction in the lease liability)
and interest (an annual expense).
b. need to be divided into an interest component and an expense component. The
expense effectively shows the amortisation of the lease asset
c. are reductions of the lease liability that should be debited to the liability account.
d. are an expense that should be recognised in the annual statements of

comprehensive income.
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The correct answer is: should be considered as a payment of principal (reduction in
the lease liability) and interest (an annual expense).
Question 7
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In the case of a lease, the accounting treatment by the lessee could

Select one:
a. accrue the lease payments and match them against revenues earned by using a
unit of production method
b. recognise an asset and associated liability equal in value to the present value of
the minimum lease payments.
c. calculate the IRR implicit in the lease contract and disclose it in the notes to the
accounts.
d. provide note disclosure to the accounts and recognise the lease payments in the
same way as a rental expense
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The correct answer is: recognise an asset and associated liability equal in value to
the present value of the minimum lease payments.
Question 8
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What characteristic(s) of land means that the lessee does not normally receive
substantially all of the risks and rewards incidental to ownership (in which case
making a lease of land an operating lease)?
Select one:
a. Land being leased normally has a building on it.
b. Land normally has an indefinite economic life.
c. Land title must be transferred only by law.
d. Land is a tangible asset.
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The correct answer is: Land normally has an indefinite economic life.
Question 9
Incorrect
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From the perspective of the lessor, finance leases can be further classified into:
Select one:
a. leases involving manufacturers or dealers and sales and leasebacks
b. leases involving land and buildings and direct-finance leases
c. leases involving manufacturers or dealers and direct-finance leases
d. leases involving agricultural products and direct-finance leases.
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Your answer is incorrect.

The correct answer is: leases involving manufacturers or dealers and direct-finance
leases
Question 10
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The central accounting issue associated with leases is:

Select one:
a. the timing of the recognition of the lease payments
b. whether or not the leased assets should be treated as assets of the lessee.
c. the method of recording any commitment to guarantee the value of the asset at
the end of the lease term
d. the treatment of provisions for the repairs and maintenance on leased assets.
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The correct answer is: whether or not the leased assets should be treated as assets
of the lessee.
Question 1
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Revenue recognition under IASB (2011) requires that:

Select one:
a. the entity retains neither continuing managerial involvement to the degree
normally associated with ownership nor effective control over the goods.
b. the costs incurred or to be incurred can be measured reliably
c. there should be a direct function of the transfer of control of the goods and
services to the customer
d. the entity has transferred to the buyer the significant risks and rewards of
ownership
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The correct answer is: there should be a direct function of the transfer of control of
the goods and services to the customer
Question 2
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Under the AASB (IASB) conceptual framework income is now subdivided into
Select one:
a. gains, which are regarded as constituting a separate element in the framework;
revenues, which may only arise in the course of the ordinary activities of the entity.
b. revenues, which only include sales, fees, interest, dividends, royalties and rent;
gains, which are no different in nature to revenue.
c. increases in equity referred to as gains; reductions in liabilities which are
classified as revenues
d. revenues, which arise in the course of the ordinary activities of the entity; gains,
which may or may not arise in the course of the ordinary activities of the entity.
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The correct answer is: revenues, which arise in the course of the ordinary activities
of the entity; gains, which may or may not arise in the course of the ordinary
activities of the entity.
Question 3
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IASB (2011) specifies the accounting treatment in the case that the outcome of a
construction contract cannot be reliably assessed. The treatment specified is:
Select one:
a. (a) contract costs must be deferred and matched against revenues in the
financial year in which they are recognised where it is not probable that the costs
will be recovered in the current period; and (b) where it is probable that the costs
will be recovered in the current period, revenue must be recognised only to the
extent of the costs incurred.
b. (a) contract costs must be recognised as an expense in the financial year in
which they are incurred; and (b) where it is probable that the costs will be
recovered, revenue must be recognised only to the extent of the costs incurred.
c. (a) construction costs must be accrued and reported as a deferred asset to the
extent that it is considered probable that the costs will be recovered; and (b)
revenue may be recognised only to the extent of the costs incurred
d. (a) construction costs must be recognised as a contra asset in the financial year
in which they are incurred and set-off against the receivable recorded on the
contract; and (b) where the receivable is less than the accrued costs, the difference
must be written off as an expense in the period
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The correct answer is: (a) contract costs must be recognised as an expense in the
financial year in which they are incurred; and (b) where it is probable that the costs
will be recovered, revenue must be recognised only to the extent of the costs
incurred.
Question 4
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Revenues may be generated by

Select one:
a. holding and disposing of inventory in the normal course of business.
b. receiving a donation.
c. all of the given answers
d. having a liability forgiven
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Question 5
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Which of the following statements is not in accordance with IASB (2011) Revenue

from Contracts with Customers with respect to revenue recognition when right of
return exists?
Select one:
a. When goods are sold or services are rendered recognition of a refund liability.
b. Revenue recognition of the consideration for the transferred products to which

the entity is expected to be entitled.
c. All of the given answers are in accordance with the accounting standard
d. Recognition of an asset for its right to recover products from customers on
settling the refund liability.
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The correct answer is: All of the given answers are in accordance with the
accounting standard
Question 6
Not answered
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Kringle Company has agreed to provide services to North to South Ltd in exchange
for a piece of equipment and a cash payment. The equipment is currently recorded
in North to South's books at $73 000 but independent assessors have set the fair
value at $65 000. The cash payment of $20 000 will be received 12 months after
completion of the services. Kringle should record revenue as
Select one:
a. $65 000 in the current period, $20 000 next period
b. $65 000 plus the present value of the $20 000 cash component
c. $85 000
d. $93 000
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The correct answer is: $65 000 plus the present value of the $20 000 cash
component
Question 7
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Marked out of 1.00
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An entity shall recognise revenue from a contract when

Select one:
a. the entity has satisfied the performance obligation
b. the goods or service have been transferred to the customer.
c. all of the given answers are necessary for recognition of revenue from a contract
d. the customer obtains control of the goods or service
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The correct answer is: all of the given answers are necessary for recognition of
revenue from a contract
Question 8
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Minty-Fresh Ltd sells a designer toy in advance of its release in July to a customer
for $350 in April. Which of the following would be included in the transaction to
record the sale of the designer toy?
Select one:
a. DR Gift certificate expense 200
b. CR Gift certificate 350
c. CR Sales revenue 350
d. CR Unearned revenue 350
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The correct answer is: CR Unearned revenue 350
Question 9
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When goods are sold 'free on board' (f.o.b.) shipping point, the revenue should be
recognised when
Select one:
a. the goods are completed and ready to be transported.
b. the goods are received by the purchaser

c. none of the given answers is correct; there is no revenue involved for goods sold
on terms 'free on board'.
d. the goods are received by the common carrier
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The correct answer is: the goods are received by the common carrier
Question 10
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Daniel Ltd sells one of its properties to a financing company with an attached call
option, which allows Daniel Ltd to reacquire the property at a future date for $400
000. The current market value at the time of the sale is $300 000, but the financing
company pays $350 000 for it. It is expected that the market value of the property
will exceed $400 000 before the option expires. What is the appropriate treatment
of this sale?
Select one:
a. Set-off the call option and the building-reporting changes in the difference
between their current values as revenues or expenses as appropriate.
b. Record the revenue and make appropriate note disclosures about the call option
and its associated risks.
c. No entry would be required as the call option is off balance sheet and the
building has not effectively been sold.
d. Record the inflow of cash and a liability
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The correct answer is: Record the inflow of cash and a liability
Question 1
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A defined contribution superannuation plan is one in which:

Select one:
a. the contributions to the plan are only paid out to members on retirement
b. the benefits paid out by the plan depend on the contributions made to the plan
and the earnings of that plan
c. the benefits paid out by the plan are based on the average salary of an employee
over a period of years as a reflection of the employee's contribution to the employer
d. the contributions are defined by the amount needed to pay out benefits to the
members at a specified level on retirement
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The correct answer is: the benefits paid out by the plan depend on the contributions
made to the plan and the earnings of that plan
Question 2
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nine weeksAn employee whose contract for service includes an entitlement to 2

weeks' non-cumulative, vesting sick leave tenders his/her resignation to take effect
exactly halfway through their fifth year of employment. What is the employee's sick
leave entitlement, in weeks, that will be paid out on his/her departure assuming
that no sick leave has been used?
Select one:
a. ten weeks
b. zero
c. one week
d. nine weeks
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The correct answer is: one week
Question 3
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When salaries and wages are capitalised as part of the costs of an asset, such as
inventory
Select one:
a. an expense is finally recognised in the form of 'cost of goods sold'
b. an expense will be recognised only when the employee takes leave.
c. an expense is recognised as part of the cost of the inventory
d. an expense will never be recognised for the salaries and wages
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The correct answer is: an expense is finally recognised in the form of 'cost of goods
sold'
Question 4
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Junior Ltd employs three workers to develop and test games. The employees are
currently earning $30 000 each and are expected to cease their employment in 20
years. At the end of their employment each employee is entitled to a lump sum
payment equal to 10% of their final salary. Actuarial analysis suggests salaries will
increase evenly at a rate of 5% per year over the 20 years. In 5 years' time, what
total benefit will the three employees have accrued (rounded to the nearest dollar)?
Select one:
a. $165 000
b. $119 399
c. $23 899
d. $114 865
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Question 5
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Employee benefits include:

Select one:
a. superannuation, wages and salaries, sick leave and annual leave
b. wages and salaries, sick leave, payroll tax, annual leave
c. sick leave, annual leave, unemployment benefits, salaries and wages
d. annual leave, wages and salaries, post-employment benefits, payroll tax
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The correct answer is: superannuation, wages and salaries, sick leave and annual
leave
Question 6
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The following journal entry shows:

Dr Provision for long service leave $ 2540
Cr cash $2540
Select one:
a. An employer is building up a provision account for long-service leave to enable it
to account for leave taken in the future
b. An (some) employee(s) may have taken long-service leave and an (some)
employee(s) may have been paid out their long-service leave entitlement upon
resignation
c. An (some) employee(s) may have been paid out their long-service leave
entitlement upon resignation
d. An (some) employee(s) may have taken long-service leave
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The correct answer is: An (some) employee(s) may have taken long-service leave
and an (some) employee(s) may have been paid out their long-service leave
entitlement upon resignation
Question 7
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The amount represented as a current liability, 'Provision for long-service leave'

generally represents
Select one:
a. the amount of long-service leave that is expected to be taken in the 12 months
following the balance date
b. the amount of long-service that has been provided for, for all employees of the
entity
c. the amount to be expensed as long-service leave expense in the next 12 months
d. the amount of long-service leave remaining to be taken by staff
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The correct answer is: the amount of long-service leave that is expected to be
taken in the 12 months following the balance date
Question 8
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Short-term employee benefits are defined in AASB 119 as:

Select one:
a. employee benefits that are wholly due within 12 months after the end of the
period in which the employee rendered the related service
b. the undiscounted value of wages, salaries and social security contributions to
which the employer is presently obliged
c. benefits that are paid to employees while they are employed by the company
making the payment
d. all payments made to an employee within 12 months of the date the employee
rendered the service
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The correct answer is: employee benefits that are wholly due within 12 months
after the end of the period in which the employee rendered the related service
Question 9
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Junior Ltd employs three workers to develop and test games. The employees are
currently earning $30 000 each and are expected to cease their employment in 20
years. At the end of their employment each employee is entitled to a lump sum
payment equal to 10% of their final salary. Actuarial analysis suggests salaries will
increase evenly at a rate of 5% per year over the 20 years. At the end of the 20
years Junior's undiscounted obligation is $477 593. Assuming an interest rate of
8%, calculate the obligation that would be recorded at the end of year 1 (rounded
to the nearest dollar).
Select one:
a. $102 466
b. $23 898
c. $21 986
d. $5123
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The correct answer is: $5123
Question 10
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An employee whose contract for service includes an entitlement to 1 week's

cumulative sick leave per annum will be entitled to how many weeks' sick leave
after 3 years' employment if no sick leave has been taken?
Select one:
a. Three weeks
b. One week
c. Between 1 and 3 weeks depending on annual leave entitlements
d. Either 1 or 3 weeks depending on long-service leave entitlements
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The correct answer is: Three weeks
Different measurement models affect the determination of income and expenses.

The different measurement models include
Select one:
a. current cost, historical cost, overhead cost.
b. historical cost, direct costs, indirect costs
c. market value, opportunity cost, historical cost.
d. historical cost, fair value, present value
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The correct answer is: historical cost, fair value, present value
Question 2
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If it is found that an error had been made in a prior period:

Select one:
a. material errors discovered in the current reporting period must be included in
that period's statement of profit or loss and other comprehensive income, while
non-material errors may be corrected with an adjustment to opening retained
earnings.
b. AASB 101 does not cover this concept and so no entry is required.
c. the error should be rectified by including the item of income or expense in the
period in which the error was discovered.
d. AASB 108 requires that errors are corrected via an adjustment to opening
balance of retained earnings
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The correct answer is: AASB 108 requires that errors are corrected via an
adjustment to opening balance of retained earnings
Question 3
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The statement of changes in equity is required:

Select one:
a. to show profit and loss for the period
b. to provide a reconciliation of opening and closing equity, and also to provide
details of the various equity accounts that are impacted by the period's total
comprehensive income.
c. to summarise the large number of transactions that take place on the income
statement
d. because AASB 101 deals with income and does not define profit.
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The correct answer is: to provide a reconciliation of opening and closing equity, and
also to provide details of the various equity accounts that are impacted by the
period's total comprehensive income.
Question 4
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Which of the following is not a required disclosure pertaining to payments made to

auditors?
Select one:
a. The amounts paid to an auditor for an audit of financial statements of the entity.
b. The amounts paid to assurors of corporate sustainability reports

c. The nature of each of the non-audit services provided by the auditor.
d. The amounts payable to an auditor for a review of financial statements of the

entity.
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The correct answer is: The amounts paid to assurors of corporate sustainability
reports
Question 5
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The notes to the accounts that relate to income and expense should include:
Select one:
a. a variety of information that incorporates the disclosures required in all
standards related to income and expenses.
b. only commentary on issues covered by AASB 101.

c. only items that were deemed non-material when selecting items to place on the
face of the accounts
d. only information that would have resulted in a different profit or loss figure if it
had been included on the face of the statement.
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The correct answer is: a variety of information that incorporates the disclosures
required in all standards related to income and expenses.
Question 6
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An entity is required in AASB 101 to produce

Select one:
a. all of the given answers
b. a statement of profit or loss and other comprehensive income.
c. a statement of changes in equity.
d. a statement of financial position

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Question 7
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Hunter Ltd has purchased a set of wine-tasting glasses. They expect to use them
extensively, and will dispose of them within 12 months. The glasses cost $130.
What would be included in the journal entry to record the purchase of the wine-
tasting glasses set?
Select one:
a. DR Loss on wine-tasting glasses 130
b. DR Wine-tasting glasses (expense) 130
c. CR Gain on sale of glasses 130
d. DR Wine-tasting glasses (asset) 130
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The correct answer is: DR Wine-tasting glasses (expense) 130
Question 8
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The effect of a revision of an accounting estimate must be recognised in profit and

loss in which reporting periods?
Select one:
a. In the present and prior reporting periods (by adjusting retained earnings).
b. Not recognised in any period
c. In the present, prior (by adjusting retained earnings) and future periods
affected.
d. In the present and future periods affected.
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The correct answer is: In the present and future periods affected.
Question 9
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'Comprehensive income' refers to:

Select one:
a. none of the given answers
b. the statement of changes in equity.
c. the statement of total recognised income and expense.
d. the net profit figure shown at the bottom of the statement of profit or loss.
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The correct answer is: none of the given answers
Question 10
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A statement displaying components of profit or loss is referred to in AASB 101 as a
:
Select one:
a. income statement.
b. profit and loss statement
c. statement of income.
d. statement of financial performance.
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The correct answer is: income statement.
At acquisition date which of the following is not required to be recognised by the

acquirer?
Select one:
a. Goodwill separately from the identified assets acquired.
b. Non-controlling interest in the acquiree.

c. Liabilities assumed.
d. Retained earnings of the acquiree.
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The correct answer is: Retained earnings of the acquiree.
Question 2
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What are the major consolidation concepts?
Select one:
a. entity, parent-entity and proprietary
b. parent-entity, ownership and proprietary
c. entity, partnership and parent
d. equity, control and ownership
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The correct answer is: entity, parent-entity and proprietary
Question 3
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A subsidiary:
Select one:
a. is not excluded from consolidation simply because the investor only has
significant influence, and not control, over it.
b. is not excluded from consolidation simply because the investor is a venture
capital organisation
c. is excluded from consolidation because its business activities are dissimilar from
those of other entities within the group
d. is excluded from consolidation because the investor is a venture capital

organisation.
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The correct answer is: is not excluded from consolidation simply because the
investor is a venture capital organisation
Question 4
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A consolidated entity is defined as

Select one:
a. the parent company, non-controlling interests and subsidiaries owned by that
parent company as at the end of the financial year.
b. the company and its subsidiaries at the end of the financial year. Subsidiaries
are companies and trusts as defined in terms of the Corporations Act.
c. a trust or partnership registered as a management investment scheme and all

the entities it controls at the end of the financial year.
d. a combined entity constituted by a parent entity and its controlled entities.
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The correct answer is: a combined entity constituted by a parent entity and its
controlled entities.
Question 5
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The factors that are taken into consideration in determining whether or not an
entity should be consolidated under AASB 10 include:
Select one:
a. the nature of the legal form of the entity and whether or not the 'parent' entity
owns enough of the equity in the entity to effectively control the benefits that flow
from the relationship with the other entity.
b. whether or not the potential 'parent' entity controls the other entity and whether
or not it is in a significantly different business to the potential 'parent'.
c. the number of members on the board under the control of the potential 'parent'
entity, and whether or not the other entity has been partitioned by the potential
'parent' entity.
d. whether or not the potential 'parent' entity controls the other entity
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The correct answer is: whether or not the potential 'parent' entity controls the other
entity
Question 6
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In the situation in which a subsidiary revalues its non-current assets to fair value in
its books as part of being acquired by a parent entity, the accounting treatment is:
Select one:
a. to create a revaluation surplus in the consolidated accounts and write it off
against the parent entity's investment in the subsidiary.
b. to write off the adjustment to fair value to the statement of comprehensive
income, as determined by AASB 10 Consolidated Financial Statements, which is
concerned with the treatment of the revaluation in the books of the controlled
entity.
c. to treat the revaluation according to AASB 116 Property, Plant and Equipment in
the books of the subsidiary entity.
d. to adjust the investment recorded by the parent entity so that the entry
balances in the elimination entry.
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The correct answer is: to treat the revaluation according to AASB 116 Property,
Plant and Equipment in the books of the subsidiary entity.
Question 7
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Which of the following statements accurately describes important aspects of

consolidation after the date of acquisition?
Select one:
a. The elimination entry is made each time the consolidation is undertaken. If an
excess arises on consolidation it is completely written off in the first year and is not
included in the consolidation worksheet entries again. If goodwill arises it is
recognised for the full amount at acquisition and amortised over a period not
exceeding 20 years. Any earnings made by the controlled entity after acquisition
belongs to the parent entity and should be reflected in the consolidated accounts
and the parent entity's books.
b. The elimination entry will be made each time the consolidation is undertaken.
Goodwill arising on consolidation will be recognised. If the controlled entity was
purchased at a discount the excess is recognised as a gain in the profit or loss on
the acquisition date
c. The elimination entry is made only the first time the consolidation is conducted.
Any goodwill arising from the purchase is amortised over the appropriate period
(not more than 20 years) and any excess will have been written off in the first
year's elimination entry. Post-acquisition earnings are considered to be part of the
group's earnings.
d. The elimination entry will be made each time the consolidation is undertaken,
but the amount of goodwill or excess recognised each time will change. The excess
will be written off in the first period and the goodwill amortised over an appropriate
period (not exceeding 20 years). The goodwill expense will be recognised in the
books of the parent company and matched against the post-acquisition earnings of
the controlled entity. Any remaining surplus is treated as income in the
consolidated accounts.
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The correct answer is: The elimination entry will be made each time the
consolidation is undertaken. Goodwill arising on consolidation will be recognised. If
the controlled entity was purchased at a discount the excess is recognised as a gain
in the profit or loss on the acquisition date
Question 8
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In a situation where the net assets acquired in the controlled entity are not
recorded at fair value, approaches that may be taken to account for this include:
Select one:
a. revalue the assets in the parent entity's books.
b. adjust the excess or goodwill so that the elimination entry balances.
c. revalue the assets during the consolidation process each period.
d. adjust the depreciation on the assets to bring them to fair value in the
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The correct answer is: revalue the assets during the consolidation process each
period.
Question 9
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Which of the following consolidation concepts are described correctly?
Select one:
a. The parent-entity concept includes all assets and liabilities of the parent and its
subsidiaries in the consolidated accounts. The non-controlling interest is treated as
a liability of the group
b. The entity concept requires the inclusion of all the parent entity assets and the
proportionate share of the assets and liabilities of the subsidiaries where the
proportion is based on the direct ownership of the capital of the subsidiary by
parent companies within the group.
c. The proprietary concept includes all the assets and liabilities of the parent
company and subsidiaries as assets and liabilities of the group. Non-controlling
interest is treated as a liability of the group.
d. The proprietary concept includes all the assets and liabilities of the parent
company and subsidiaries as assets and liabilities of the group. Non-controlling
interest is treated as a liability of the group; the parent-entity concept includes all
assets and liabilities of the parent and its subsidiaries in the consolidated accounts.
The non-controlling interest is treated as a liability of the group
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The correct answer is: The parent-entity concept includes all assets and liabilities of
the parent and its subsidiaries in the consolidated accounts. The non-controlling
interest is treated as a liability of the group
Question 10
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Control is defined as
Select one:
a. governing the financial, operating and sustainability policies of an entity so as to
benefit from its activities.
b. the capacity and willingness to direct the decision making of another entity with
respect to its financial and operating policies to improve the performance and
position of the controlling entity.
c. the capacity of an entity to dominate the decision making of another entity by

virtue of a majority shareholding or controlling ownership interest in some form.
d. the power to govern the financial and operating policies of an entity so as to

benefit from its activities.
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The correct answer is: the power to govern the financial and operating policies of
an entity so as to benefit from its activities.
Companies A, B and C are all part of the one economic entity, but are all separate
legal entities required to prepare their own financial statements. Company A sold
Company B's inventory that cost $56 000 for $78 000. At the end of the same
period Company B has three-quarters of that inventory still on hand and the rest
has been sold to an entity outside the economic group. At what amount should the
inventory remaining in Company B be recorded in Company B's own financial
statements?
Select one:
a. $14 625
b. $42 000
c. $58 500
d. $56 000
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Question 2
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Intragroup transactions that are to be eliminated in the consolidated accounts

include:
Select one:
a. the payment of management fees to a member of the group.
b. inter-entity sales of non-current assets.
d. inter-entity loans.
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The correct answer is: all of the given answers.
Question 3
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Lilo Ltd sells inventory items to its subsidiary Stitch Ltd. If during the financial year
2013, the unrealised profits in ending inventory in Stitch Ltd exceeds that of its
unrealised profits in beginning inventory, which of the following statements is
correct with respect to Lilo Ltd's consolidated financial statements after considering
these transactions only?
Select one:
a. Consolidated deferred tax liability will increase.
b. Consolidated sales will be unaffected.

c. Consolidated ending inventory will decrease.
d. Consolidated profit will decrease.

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The correct answer is: Consolidated profit will decrease.
Question 4
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Examples of intragroup transactions include:
Select one:
a. the sale of inventories to external parties.
b. the payment of taxation.
c. dividends payable to group members.
d. the recognition of minority interests
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The correct answer is: dividends payable to group members.
Question 5
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Companies A, B and C are all part of the one economic entity, but are all separate
legal entities required to prepare their own financial statements. Company A sold
Company B inventory that cost $56 000 for $78 000. At the end of the same period
Company B has three-quarters of that inventory still on hand and the rest has been
sold to an entity outside the economic group. At what amount should the inventory
remaining in Company B be recorded in the consolidated statements?
Select one:
a. $56 000
b. $42 000
$42 000
$42 000
c. $58 500
d. $14 625
$14 625
$14 625
$14 625
$14 625
$14 625
$14 625
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$42 000
$42 000
Question 6
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A non-current asset was sold by Subsidiary Limited to Parent Limited during the
2013/14 financial year. The carrying amount of the asset at the time of the sale
was $700 000. As part of the consolidation process, the following journal entry was
passed.
30 June 2014
Dr Profit on sale of asset $200 000
Dr Asset $300 000
Cr Accumulated depreciation $500 000
What (a) amount did Parent Limited pay Subsidiary Limited for the asset; (b) was
the cost of the asset as shown in the books of Subsidiary Limited?
Select one:
a. (a) $900 000; (b) $800 000
b. (a) $700 000; (b) $1 200 000
c. (a) $900 000; (b) $1 400 000
d. (a) $900 000; (b) $1 200 000
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The correct answer is: (a) $900 000; (b) $1 200 000
Question 7
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Large Company owns 80% of the issued capital of Smaller Company and Large
Company owns 60% of the issued capital of Medium Company. The three
companies form an economic entity for the purposes of consolidated accounts.
During the period Smaller Company sold inventory to Medium for $400 000.
Medium sold the same inventory to Large for $560 000 and Large sold it to an
entity external to the group for $760 000. What are the sales revenue reported in
the consolidated statements for this item?
Select one:
a. $400 000
b. $1 720 000
c. $1 416 000
d. $760 000
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Question 8
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What is the amount of unrealised profit that needs to be eliminated at the end of
the period, in the following situation, where Morecombe Limited is the parent of
Wise Limited? (Ignore the tax effect.) Morecombe purchases 500 units of inventory
for $20 each. Morecombe sells this entire inventory to Wise at a mark-up of 25%.
Wise then sells half of the inventory to an external party. Half of the remaining
amount (after the external sale) is sold back to Morecombe for $2500.
Select one:
a. $1250
b. $625
c. $300
d. Cannot determine from the information given.
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Question 9
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What is the amount of unrealised profit that needs to be eliminated at the end of
the period, in the following situation, where Barker Limited is the parent of Corbett
Limited? (Ignore the tax effect.) Barker purchases 500 units of inventory for $20
each. Barker sells this entire inventory to Corbett at a mark-up of 50%. At the end
of the period, 100 units are on hand.
Select one:
a. $1000
b. $2000
c. $3000
d. $5000
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Question 10
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Dividends paid between entities in the group should be

Select one:
a. not permitted by the ultimate controlling entity because it does not make sense
to exchange money between entities in the one economic group.
b. eliminated from the group accounts, but reflected in the individual legal entity
accounts, since the group accounts reflect the many entities as one single economic
entity.
c. retained in the consolidated statements but disclosed separately as related-party
transactions.
d. reflected in the group accounts because it reflects the economic return the group
earned by investing in the companies that form its operations.
Feedback

The correct answer is: eliminated from the group accounts, but reflected in the
individual legal entity accounts, since the group accounts reflect the many entities
as one single economic entity.
Yarra Manufacturing Ltd is an Australian registered entity that has a branch in

Singapore, Kew Ltd. The Singapore branch has a foreign operation in China. The
foreign operation maintains its accounting records in Chinese yuan. The functional
currency of the Chinese operation is Singapore dollar. The presentation currency of
Kew Ltd is Australian dollar.
At reporting date, the translation of the financial statements of the Chinese foreign
operation resulted in a loss of S$6500 and the translation of the financial
statements of Kew Ltd to its presentation currency resulted to a gain of A$4500.
Which of the following results is consistent with AASB 121 with respect to Kew Ltd?
Select one:
a. Loss of S$6500 should be recognised in comprehensive income
b. Gain of A$4500 should be recognised in profit and loss.
c. Gain of A$4500 should be recognised in comprehensive inco

d. Loss of S$6500 should be recognised in profit and loss
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The correct answer is: Loss of S$6500 should be recognised in profit and loss
Question 2
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The exchange rate for a currency depends on many factors including:

Select one:
a. the price of McDonald's hamburgers in each country
b. the rate at which the Australian currency is pegged at relative to the other
currency of interest.
c. the demand for and supply of the currency in the market.
d. the price of options on futures of the foreign currency.
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The correct answer is: the demand for and supply of the currency in the market.
Question 3
Incorrect
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A deposit in foreign currency made by an Australian entity should be translated at
the following dates for reporting purposes of the entity
Select one:
a. only at reconciliation between the end of the first financial year after making the
deposit with the foreign bank and no further subsequent adjustments.
b. at the date of the deposit and then adjusted for a gain or loss based on the
initial deposit rate at the beginning of the financial year
c. at the date of the deposit, and then a gain or loss should be recorded at the end
of the financial year.
d. only at the date the deposit is made with the foreign bank.
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The correct answer is: at the date of the deposit, and then a gain or loss should be
recorded at the end of the financial year.
Question 4
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If the assets of a foreign operation exceed its liabilities, and the value of the
Australian dollar falls relative to the currency of the foreign operations, there will
be:
Select one:
a. a credit to 'foreign currency translation revenue' in the consolidated accounts
b. a debit to the 'foreign currency translation reserve' in the consolidated accounts.
c. a debit to the 'foreign currency translation expense' in the consolidated accounts.
d. a credit to the 'foreign currency translation reserve' in the consolidated accounts.
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The correct answer is: a credit to the 'foreign currency translation reserve' in the
Question 5
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Exchange differences resulting from the translation of foreign operations to

presentation currency are shown
Select one:
a. in the 'general reserve' section of equity.
b. in the 'retained earnings' section of equity.
c. in the 'asset revaluation reserve' section of equity.
d. none of the given answers.
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The correct answer is: none of the given answers.
Question 6
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'Exchange rate' is:

Select one:
a. the difference between the currency rates.
b. the rate at which one currency can be exchanged for another.
d. not defined in AASB 121.
Feedback

The correct answer is: the rate at which one currency can be exchanged for
another.
Question 7
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A foreign currency transaction shall be recorded on initial recognition in the:

Select one:
a. foreign currency
b. local currency.
c. functional currency
d. presentation currency
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The correct answer is: functional currency
Question 8
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The 'spot rate' is:

Select one:
a. can never be used in translating the accounts of foreign operations.
b. only used in relation to metals, that is, the spot metal price.
c. the exchange rate for immediate delivery of currencies to be exchanged.
d. the rate for delivery the next day of currencies to be exchanged.
Feedback

The correct answer is: the exchange rate for immediate delivery of currencies to be
exchanged.
Question 9
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The functional currency of an entity

Select one:
a. can change as a consequence of the foreign currency transactions that are
undertaken by the parent entity
b. never changes once determined.
c. can change if there is a change in underlying transactions, events and conditions
which determine the functional currency.
d. must be assessed and changed annually
Feedback

The correct answer is: can change if there is a change in underlying transactions,
events and conditions which determine the functional currency.
Question 10
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Which of the following statements is correct with respect to AASB 121 The Effects
of Changes in Foreign Exchange Rates?
Select one:
a. Exchange differences arising from the translation of long-term monetary items
are recognised in profit or loss on settlement.
When there is a change in an entity's functional currency, the entity shall apply the
translation procedures applicable to the new functional currency retrospectively
from the date of the change
b. Exchange differences arising from long-term monetary items are deferred and
amortised into operating profit or loss over the term of the long-term monetary
asset or liability.
c. When there is a change in an entity's functional currency, the entity shall apply
the translation procedures applicable to the new functional currency prospectively
from the date of the change.
d. Exchange differences arising from the translation of long-term monetary items

are recognised in profit or loss on settlement.
Feedback

The correct answer is: When there is a change in an entity's functional currency,
the entity shall apply the translation procedures applicable to the new functional
currency prospectively from the date of the change.

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1

Differential reporting is based on:

d. the burden of additional reporting for some organisations in situations where

A general purpose financial statements means:

In the absence of regulation, for auditing to be an effective strategy for reducing

d. be formally registered under the Registered Auditors Act 1998.

The correct answer is: International Financial Reporting Interpretations Committee

To determine whether or not information is material, paragraph 9 of AASB 108

d. present the financial report in a 'true and fair' manner.

d. Australian Accounting Standards Board.

The correct answer is: Australian Accounting Standards Board.

Which of the following statement was not identified as a benefit of international

The Corporations Act requires which of the following statements to be included in a

In accordance with AASB 101 Presentation of Financial Statements, a financial

d. a statement of financial position, an income statement, a cash flow statement

The correct answer is: a statement of financial position, an income statement, a

d. the Australian Accounting Standards Review Board.

The correct answer is: the Commonwealth Parliament.

Arguments against the regulation of accounting information include:

Responsibility for the preparation of the financial information of a company rests

d. the auditors and management jointly.

The correct answer is: management.

d. Management accounting is focused on providing information to shareholders who

d. different business environments.

The correct answer is: all of the given answers.

d. a cheap good.

The correct answer is: a public good.

d. There are only slight differences between IFRS and US GAAP.

Your answer is correct.

Your answer is correct.

A central goal in establishing a conceptual framework of accounting will be to obtain

d. the scope and objectives of financial reporting.

Your answer is correct.

d. relevant to the assessment of performance, financial position and funding and

Your answer is correct.

The IASB conceptual framework adopts which approach to determining profits

Your answer is correct.

The framework outlines two underlying assumptions of financial statements. These

d. accrual basis of accounting and going concern assumption

Your answer is correct.

Identify the appropriate qualitative characteristic employed in the following

Your answer is correct.

Your answer is correct.

When preparing financial reports, 'users are assumed to have a reasonable

Your answer is correct.

Which of the following actions best describes the qualitative characteristic

d. DGC omitted a sales transaction equal to 10.5% of its accounts receivable

Your answer is correct.

Accounts that make up owners' equity may include

Your answer is correct.

The process for issuing shares is that

Your answer is correct.

Holders of ordinary shares

d. receive dividends at the discretion of the board

Your answer is correct.

Your answer is correct.

d. $10 million; $30 million

Your answer is correct.

In the case of a share issue being oversubscribed, excess application monies