ACCY 231 - Test 1

72. Retained earnings are a component of a. Contributed equity b. Reserves c. Other equity d. Comprehensive income

B

1. The Appendix to IAS 18 contains illustrative examples which: a. are not part of the standard itself. b. in some cases contradicts the requirements within the body of IAS 18. c. in some cases is inconsistent with the principles within the Conceptual Framework d. all of the options are correct.

D

68. Accounting for share buy-backs is prescribed by a. an IFRS accounting standard b. an IFRIC interpretation c. an IAS accounting standard d. generally accepted accounting practices

D

2. Which of the following documents issued alongside IFRS 13 do not form an integral part of the standard? I Basis for Conclusions II Illustrative Examples III Appendix A: Defined terms IV Appendix B: Application guidance a. I and II b. II and III c. III and IV d. I and IV

A

53. Which of the following events occurring after the reporting date but before the financial report is authorised for issue is NOT an example of an adjusting event? a. a decline in the market value of a listed security b. the notification of the insolvency of a debtor c. an event that indicates that the going concern basis of accounting may not be appropriate. d. the sale of inventories after the reporting date for an amount below cost

A

62. Which of the following is not a reason that companies may undertake a share buy-back? a. as a defence against a hostile takeover b. to manage the capital structure c. to increase the worth per share of the remaining shares d. as a way to efficiently manage surplus funds

A

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? A. International Accounting Standards Board (IASB). B. International Financial Reporting Interpretations Committee (IFRIC). C. International Interpretations and Issues Group (IIIG). D. Urgent Issues Group (UIG).

B

Which of the following represents a general difference between NZ IAS standards and the International Financial Reporting Standard (IFRS) from which they are adapted? A. NZ IAS standards are likely to include less explanatory material. B. Some NZ IAS standards might have fewer options. C. NZ IAS standards will not require any additional disclosure. D. NZ IAS standards might have more options.

B

5. When determining the fair value of an asset its fair value is based on its: a. Current use b. Proposed use c. Highest and best use d. Value in use

C

9. Unobservable inputs for the asset or liability are an example of: a. a Level 1 input b. a Level 2 input c. a Level 3 input d. a Level 4 input

C

13. When the collectability of an amount that has been recorded as revenue becomes uncertain, the appropriate accounting treatment is to: A. recognise as an expense the amount in respect of which recovery has ceased to be probable. B. calculate the discounted present value of the amount expected to be received and adjust the recorded revenue accordingly. C. adjust the amount of revenue originally recognised. D. make no adjustment as the amount and timing of the uncollectible amount is uncertain.

A

14. The effect that IFRIC Interpretation titled Agreements for the Construction of Real Estate will have the following effect for entities that undertake off-the-plan real estate sales is that: a. the percentage of completion method of revenue recognition will be discontinued. b. the use of the completed contracts method of revenue recognition will be discontinued. c. the amount of revenue recognised on such sales will reduce. d. the amount of revenue recognised on such sales will increase.

A

14. When goods are sold on extended credit there is an implicit financing arrangement contained in the sale agreement. In order to separate the financing element from the sale, it is necessary to calculate the applicable interest rate inherent in the agreement. What advice does IASB (2011) provide about this? A. The implicit rate of interest is the more clearly determinable of either (a) the prevailing rate of a similar instrument of an issuer with a similar credit rating, or (b) a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services. B. The implicit rate of interest is the internal rate of return implicit in the contract such that the sales price is equal to the fair market value of the asset. C. The implicit rate of interest is the more reliably determinable of either (a) the prevailing rate of a debt instrument of an issuer adjusted to the organisation-specific, risk adjusted rate of the issuer, or (b) a rate of interest that discounts the sales price to the fair market value of the goods or services. D. The implicit rate of interest is the internal rate of return implicit in the contract such that the sales price is equal to the fair market value of the asset. This rate may have to be adjusted to take account of the risk of the issuer if it is significantly different to the market-determined interest rate for similar entities.

A

17. Werribee Direct Ltd is a mail order company that allows its customers to order online and return the goods without obligations. Werribee Direct Ltd had experienced a high ratio of returned merchandise from online sales. What is the appropriate accounting treatment for this sale that is in accordance with IASB (2011) Revenue? A. Record the sale only when the option to return has expired. B. Record the sale and reduce this by an estimate of future returns. C. Record the sale and account for returns as they occur. D. Record the sale as deferred revenue and recognise revenue progressively until expiry of the option.

A

27. Which of the following is an example of a liability where there is no corresponding asset? a. a provision for decommissioning b. a debenture issued by a listed company c. a loan owing to a financial institution d. a provision for warranties.

A

32. Items that are dissimilar in nature must be presented separately in financial statements unless: a. they are immaterial; b. they are financial items in which case they can be off-set; c. the directors approve of an aggregation of the items; d. the auditors approval to aggregate the items is obtained.

A

35. The earnings cycle includes various revenue recognition points, including the following. (5) Progressively throughout production; (7) receipt of orders after completing production; (8) delivery of goods to customers; and (9) receipt of cash. At what point in the earnings cycle would revenue normally be recognised within the building industry for long-term construction contracts? A. (5) progressively throughout production B. (7) receipt of orders after completing production C. (8) delivery of goods to customers D. (9) receipt of cash

A

36. Which of the following items, if it exists, must be presented as a line item in the statement of financial position? a. Trade and other receivables b. Revenue c. Cost of sales d. Share of profit of associates.

A

38. NZ IAS 18 states 'If an entity retains significant risks of ownership, the transaction is not a sale and revenue is not recognised'. Under which of the following circumstances could revenue be recognised? A. The seller retains legal title to the goods to protect the collectability of the amount. B. The entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions. C. The receipt of revenue from a particular sale is contingent on the derivation of revenue by the buyer from its sale of the goods. D. The goods are shipped subject to installation and the installation is a significant part of the contract that has not yet been completed by the entity.

A

4. Complete the following definition of 'control' as it applies to the definition of assets: Control relates to the capacity of a reporting entity to _________ from an asset and to __________ or _________the access of others to that benefit. A. benefit; deny; regulate B. gain; prevent; forgo C. gain; restrict; hamper D. profit; stop; hold back

A

41. Which of the following is a key assumption underlying the preparation of financial statements? a. the going concern basis of accounting b. the matching principle c. the prudence principle d. the historical cost measurement basis

A

42. In relation to measurement of the elements of financial statements a. The Framework acknowledges that a variety of measurement bases are used to different degrees and in varying combinations in financial statements. b. The Framework includes detailed concepts and principles for selecting which measurement basis should be used for particular elements of financial statements. c. Net realisable value is the preferred basis for measurement of assets. d. The Framework adopts a mixed attribute accounting model

A

42. What transaction does the journal entry 'Dr allowance for doubtful debts; Cr accounts receivable' represent? A. A bad debt, previously anticipated, is realised or identified. B. A doubtful debt is estimated or anticipated. C. A bad debt is reinstated. D. None of the options given here.

A

44. Where a 'put option' is provided by the vendor as a means of enhancing the prospect of a sale taking place, under what circumstances would the transaction be considered a financing arrangement and not revenue generating? A. It is probable that the option will be exercised. B. It is improbable that the option will be exercised. C. It is normal industry practice to provide such incentives. D. The significance of the incentive would be classified as of a material nature.

A

51. Which of the following statements in relation to errors is correct? a. Errors must be accounted for on a retrospective basis. b. Under the "all inclusive" concept of profit, accounting errors must be recognised in profit and loss for the period. c. All errors, regardless of their size must be corrected as soon as they are discovered. d. Where the error is considered to be fundamental, the prior year financial statements must be recalled and reissued.

A

52. If an entity receives information after end of reporting period that one of its assets was impaired at end of reporting period by a material amount it must: a. adjust the amounts recognised in the financial statements to reflect the impairment; b. notify all shareholders in writing; c. disclose the impairment in the notes but not recognise the amount in the financial statements; d. include the impairment loss as a contingent liability.

A

56. The application of International Financial Reporting Standards with additional disclosure where necessary is presumed to result in financial statements that: a. will result in a fair presentation; b. contain only material items; c. are free from error and misstatement; d. are unbiased.

A

7. The International Accounting Standards Board (IASB) website explains how the IASB believes its relationship with national standards setters should be conducted. It notes that: A. there should be close coordination between the due process of the IASB and the process of national standard-setters. B. the IASB will inform national standard-setters of directions they should take, projects they should undertake and the outcomes that are expected of them. C. 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. D. 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.

A

71. Gains and losses on available-for-sale financial assets are recognised directly in equity until the financial asset is de recognised. At this time the cumulative gain or loss previously recognised is: a. recognised in profit and loss; b. transferred to a revaluation reserve account in equity; c. charged against a provision for gains and losses account; d. set-off against the relevant financial asset.

A

74. Which of the following does not appear in the Statement of Changes in Equity? a. The non-controlling interest share of equity b. Dividends declared but not yet paid at year end c. Appropriations from retained earnings d. The payment of a bonus dividend from a reserve

A

The New Zealand Framework for Differential Reporting applies to: A. both general purpose and special purpose financial statements. B. general purpose financial statements only. C. special purpose financial statements only. D. all reporting entities.

A

10. Under IAS 18 interest revenue is recognised as follows: a. On a straight line method b. On an effective interest method c. On either an effective interest method, or a straight line method, depending on which method the entity feels provides the most relevant and reliable information. d. At the time of receipt of the interest.

B

15. Which of the following disclosures are required under IAS 18? I total income, allocated between revenue and other gains II the accounting policies adopted for revenue recognition III the amount of each significant category of revenue recognised during the period IV the amount of revenue arising from exchanges of goods and services. a. I and II only b. II, III and IV only c. I, II and III only d. I, II, III and IV

B

16. The IASB/FASB Exposure Draft titled Revenue from Contracts with Customers is inconsistent with the principles within which of the following? a. The Conceptual Framework for Financial Reporting b. IAS 18 Revenue c. IFRIC 13 Customer Loyalty Programmes d. All of the options are correct

B

20. All things being equal, firms would typically prefer to disclose low levels of debt because: A. any debt is a bad thing in the capital structure of a business. B. additional debt may lead to a technical breach of a firm's contractual agreements with existing debt holders and lead to the possible wind-up of the business or the need to renegotiate the contract. C. the level of recognised debt will affect the profitability of the business. D. recognising debt in the income statement may lead to a decrease in management bonuses that are based on the times-interest-earned and debt-to-assets ratios.

B

21. In accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following is considered a contingent liability? A. guarantee provided by the parent entity on behalf of a solvent subsidiary B. settlement of a legal case where the company is likely to be held liable for damages in court C. best estimate of likely claims for warranty by customers D. guarantee of an associate's bank overdraft where the associate has declared bankruptcy

B

22. Evaluate whether the following situations will give rise to a present obligation: I: Bona Bay Ltd is a large manufacturer of surfboards and provides a two year warranty for all its products from the time of purchase by offering to repair or replace the item. II: Sea Eagle Ltd operates its offshore oil rigs near Curlew Beach. During the reporting period, there was a major oil spill and the company had publicly announced to undertake clean-up of all the contamination that it caused. There is no environmental legislation on oil spills. III: A customer sued Neck Bay Ltd for damages from a faulty product. The company hired a legal team to dispute this claim. IV: Whitehaven Ltd had guaranteed a bank loan to an associated company. In compliance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the above situations requires recognition in the financial statements? A. I, II and III B. I and II C. II and III D. III and IV

B

24. Separate classification of current and non-current liabilities provides useful information by: A. distinguishing working capital from net assets B. distinguishing nets assets that are continuously circulating in working capital form C. distinguishing working capital that is continuously circulating in net asset form D distinguishing liabilities from assets

B

25. Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date are an example of: a. a Level 2 input b. a Level 1 input c. a Level 3 input d. a Level 4 input

B

25.The measurement and disclosure of liabilities is of great importance to the ongoing survival of an organisation because: A. efficiency of management depend on the amount of liabilities. B. the capacity to borrow in future depends on the interest coverage and debt level. C. working capital must exceed liabilities. D. potential investors require such information.

B

26. Non-performance risk refers to the risk that: a. a market participant will not fulfil an obligation b. the holder of the liability will not fulfil an obligation c. the counterparty will not fill an obligation d. the holder of a corresponding asset will not fulfil an obligation.

B

30. Under what circumstances would a revaluation of a non-current asset be classified as revenue? A. Where the revaluation increment is material. B. To the extent that the revaluation increment reverses a previous downward revaluation. C. Where the non-current assets have only been held for a short period. D. Where the revaluation is an initial revaluation for that asset.

B

31. Under NZ IAS 18 a number of conditions must be satisfied for revenue from the 'sale of goods' to be recognised. Which of the following is not one of these conditions? A. The entity has transferred to the buyer the possible risks and rewards of ownership of the goods. B. The amount of the gain can be reliably measured. C. It is expected beyond reasonable doubt that the economic benefits associated with the transaction will flow to the entity. D. The costs incurred or to be incurred in respect of the transaction can be measured reliably.

B

34. The primary source of information about an entity's financial position is to be found in its: a. statement of profit or loss and other comprehensive income b. statement of financial position c. statement of changes in equity d. statement of cash flows

B

35. Information that is able to confirm or correct past evaluations that have been made by users of financial information is an example of information that satisfies which of the following characteristics of financial information identified in The Framework? a. Understandability b. Relevance c. Reliability d. Comparability

B

37. An entity is required to classify its assets and liabilities as current or non-current unless it is considered more relevant and provide more reliable information to present them according to their: a. value b. liquidity c. age d. physical nature.

B

39. When is revenue normally recognised in relation to an F.O.B. (free on board) shipping point? A. When the goods leave the factory. B. When the goods reach the carrier. C. When the goods reach the buyer. D. When cash is received from the buyer.

B

4. Which of the following is NOT excluded from the scope of IAS 18 Revenue? a. Accounting for share of joint venture revenue. b. Subscriptions c. Revenue arising from primary production activities d. Revenue arising from oil and gas exploration

B

40. The following are normally presented in a statement of financial position as current items: a. deferred tax liabilities b. accounts payable c. deferred tax assets d. goodwill.

B

42. At reporting date for Year 1, Elpha Limited had a loan from its bankers that it expected to settle within three months. The loan term was renegotiated after reporting date and before the authorisation date of the financial statements, and the repayment date was extended by two years. For Year 1 financial statement presentation purposes this loan is classified by Elpha Limited as: a. a non-current liability b. a current liability c. a contingent liability d. an off-statement of financial position liability.

B

45. Which of the following items, if it exists, does NOT have to be presented as a line item on the face of a statement of profit or loss and other comprehensive income? a. revenue b. closing inventory c. profit or loss attributable to non-controlling interests d. post-tax profit or loss of discontinued operations.

B

46. In respect to the statement of profit or loss and other comprehensive income of an entity, IAS 1 prescribes: a. a fixed format for the presentation of items in the statement of profit or loss and other comprehensive income b. line items that are considered to be of sufficient importance to warrant presentation c. the presentation of line items of revenue, but not of income d. the presentation of line items comprising total expenses, but not line items comprising total revenue.

B

48. In making a judgment in developing or applying an accounting policy about whether information is relevant and reliable in the financial statements, management must refer to the following reference first: a. the definitions in the IASB Framework; b. requirements and guidance in Standards and Interpretations; c. recognition criteria contained in the IASB Framework; d. the measurement concepts for assets, liabilities, income and expenses in the IASB Framework.

B

57. If the balance in a forfeited shares account is refundable to the owners of those shares, then the forfeited shares account is classified as a component of: a. income; b. liabilities; c. equity; d. expense.

B

6. When consideration is deferred and there is a below-market rate of interest charged the fair value of the consideration should be determined: a. as the nominal amount of the cash receivable b. by discounting all future receipts using an imputed rate of interest c. by discounting all future receipts using the interest rate in the contract d. as the recommended retail price of the item sold.

B

7. The following information relates to SellIT: 5000 units of stock were sold for $10 per unit the cost of that stock to SellIT was $4.50 per unit other costs incurred during the period totalled $10 000 proceeds on sale of an item of plant during the period was $2000 the carrying amount of the plant at the date of disposal was $500. SellIT would recognise the following amount as revenue for the period: a. $27 500 b. $50 000 c. $51 500 d. $52 000

B

11. ACC, a professional body charges an annual fee of $600 for subscription to its publications. The $600 fee entitles customers to receive a copy of the latest version of the professional standards relevant to their industry (updated annually). Subscribers also receive monthly newsletters for the duration of the subscription period. ACC should recognise the $600 as follows: a. Recognise the whole $600 as revenue upfront b. Recognise revenue of $50 per month across the period of the annual subscription. c. Recognise an amount upfront in relation to the copy of the professional standards, with the balance being recognised evenly across the period of the annual subscription. d. Recognise the whole $600 as revenue at the end of the subscription period

C

16. Lonsdale Ltd sells mobile phones and provides a one-year warranty. Lonsdale is able to recognise revenue at point-of-sale in accordance with IASB (2011) because: A. this is industry practice. B. repairs are unlikely within a year of sale. C. cost of repairs can be estimated based on experience and this is recognised as warranty expense in the year of sale. D. cost of repairs can be estimated based on experience and this is recognised as sales returns.

C

18. Bellarine Ltd is publisher of Mode magazine and its customers usually sign a three-year subscription with an advance payment of $500. Mode magazine has 12 issues in a year. What is the appropriate accounting treatment for this sale on the date of signing that is in accordance with IASB (2011) Revenue? A. Recognise revenue in full as this is an immaterial amount. B. Recognise the sale as a provision. C. Recognise the sale as unearned revenue. D. Disclose the sale in the notes as a contingent item.

C

22. On 1 January 2014 ABC Ltd sold goods to ZZZ Pty Ltd for a total price of $1 000. Under the terms of the sale ZZZ is able to return the goods within five days of delivery. On 3 January 2014 ZZZ returned 30% of the goods. ABC would recognise revenue as follows: a. $1 000 to be recorded as revenue on 1 January 2014 b. $700 to be recorded as revenue on 3 January 2014 c. $700 to be recorded as revenue on 5 January 2014 d. None of the above

C

23. Which of the following is not a characteristic of a market participant under IFRS 13? a. Buyers and sellers that are able to enter into a transaction for the asset or liability. b. Buyers and sellers that are willing to enter into a transaction for the asset or liability, c. Buyers and sellers that are dependent on each other. d. Buyers and sellers that are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information.

C

25. Which of the following events took place in December 2008? a. The IASB issued an Exposure Draft proposing amendments to IAS 18. b. The FASB formally adopted IAS 18. c. The IASB and FASB jointly issued a Discussion Paper on revenue recognition. d. The IASB issued an amended IAS 18.

C

28. Based on the New Zealand Framework, which of the following statements is incorrect? A. The definition of income encompasses both revenue and gains. B. Revenues arise in the course of the ordinary activities of an entity. C. Gains do not arise in the course of the ordinary activities of an entity. D. Revenues include sales, fees, interest, royalties and rent.

C

29. NZ IAS 18 applies to revenue arising from specified transactions and events. Which of the following is not one of these transactions or events? A. The sale of goods. B. The rendering of services. C. A gain on the sale of non-current assets. D. The use by others of entity assets yielding interest, royalties and dividends.

C

3. Which of the following is NOT an example of an agency arrangement where the selling entity would recognise revenue on a net basis? a. A travel agent selling an airline ticket to a customer, charging the customer $200 and remitting $180 to the airline. b. A supermarket selling groceries to a customer for $110 and remitting $10 GST to the government. c. A distributor receiving stock from its supplier on a sale-or-return basis. The sales price per unit is $120 and the cost per unit is $75 d. A licensed hotel selling keno tickets to customers for $5.00 and remitting $4.50 per ticket to the state gaming authority.

C

33. Assets and liabilities, and income and expenses may be off-set if: a. they are financial assets and liabilities; b. they are in respect of borrowing and lending activities such as interest revenue and interest expense; c. required or permitted by a standard; d. there is no tax effect.

C

33. With deferred revenue, how does NZ IAS 18 require the difference between the fair value (present value) and the nominal amount received (or receivable) to be accounted for in relation to revenue recognition and measurement? A. Adjust the transaction amount B. As a liability C. As interest revenue D. There is no difference between the two figures

C

38. Under IAS 1 Presentation of Financial Statements, which of the following items is disclosed separately on the face of a statement of financial position? a. Income tax expense b. Revenue c. Investment property d. Profit attributable to members of the parent.

C

40. When is revenue normally recognised in relation to an F.O.B. (free on board) destination? A. When the goods leave the factory. B. When the goods reach the carrier. C. When the goods reach the buyer. D. When cash is received from the buyer

C

41. What type of account is 'allowance for doubtful debts'? A. Contra revenue B. Financial expense C. Contra asset D. Liability

C

44. IAS 1 requires the following items to be disclosed separately in the statement of profit or loss and other comprehensive income: I Cost of sales. II Revenue. III Finance costs. IV Share of the profit or loss from associates. V Tax expense relating to extraordinary events. VI Tax expense relating to ordinary activities. VII Profit or loss. a. I, II, VI and VII only b. I, II, III and V only c. II, III, IV, VI and VII only d. I, III, V and VII only.

C

45. Where a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction should, perhaps, be recognised at the time of sale only if certain conditions are met. Which of the following is not one of the conditions? A. The seller's price to the buyer is substantially fixed or determinable at the date of sale. B. The buyer has paid the seller, or the buyer is obliged to pay the seller and the obligation is not contingent on resale of the product. C. The purchaser insures the goods. D. The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

C

47. Under IAS 1 profit or loss attributable to non-controlling interests is prescribed for presentation in: a. an equity statement b. a statement of financial position c. a statement of profit or loss and other comprehensive income d. a statement of cash flows.

C

50. Where an accounting estimate has been revised materially the item is: a. to be accounted for retrospectively; b. not required to be recognised in the current period; c. to be accounted prospectively; d. to be adjusted in the comparative numbers of previous periods.

C

58. In relation to 'retained earnings', IAS 1 mandates the following disclosures: I. Any changes during the reporting period. II. The related tax adjustments in respect to any changes during the period. III. The beginning balance. IV. The balance at reporting date. a. I, II, III and IV; b. II, III and IV only; c. I, III and IV only; d. III and IV only.

C

59. The issuing of bonus shares in lieu of a cash dividend would be separately disclosed in an entity's a. Statement of Financial Position b. Statement of Comprehensive Income c. Statement of Changes in Equity d. Statement of Cash Flows

C

60. Which of the following is NOT an example of an adjusting event under IAS 10? a. the settlement after reporting date but prior to the date that the financial statements are authorised for issue of a court case which had commenced prior to reporting date. b. the sale of inventories after reporting date but prior to the date that the financial statements are authorised for issue for an amount below cost. c. uninsured damage to a material item of machinery after reporting date but prior to the date that the financial statements are authorised for issue for an amount below cost. d. receipt of advice after reporting date but prior to the date that the financial statements are authorised for issue that a material debtor has been placed in liquidation.

C

8. House Proud Pty Ltd is operating a promotion selling furniture under the following conditions: Initial deposit of 20% of purchase price.Immediate delivery of furniture. Interest rate of 12.5%pa charged on the outstanding balance. Repayment of the balance (including the interest) over 24 equal monthly instalments. House Proud retains legal title to the furniture until the final monthly payment has been made. House Proud would recognise revenue as follows: a. Recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods once the final payment has been received. b. Recognise all revenue as it is received c. Recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods upfront. d. Recognise the whole amount of revenue upfront

C

The process of issuing accounting standards by the IASB is: A. establish an Advisory Committee, develop and publish Discussion Documents, develop and publish an Exposure Draft, and issue a final International Financial Reporting Standard. B. establish an Advisory Committee, develop and publish Discussion Documents, develop and publish an Exposure Draft, issue a final International Financial Reporting Standard, and publish a Basis for Conclusions. C. establish an Advisory Committee, develop and publish Discussion Documents, develop and publish an Exposure Draft, issue a final International Financial Reporting Standard, and publish a Basis for Conclusions; and publish dissenting opinions. D. none of the answers provided.

C

10. The objective of the International Financial Reporting Interpretations Committee (IFRIC) is to: A. achieve consistent interpretations of IFRS by IFRS-adopters internationally. B. address accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, with a view to reaching consensus on the appropriate accounting treatment. C. address issues of reasonably widespread importance, and not issues of concern only to a small set of enterprises. D. All of the answers provided are correct.

D

12. Big Bank Limited provides Good Sport Pty Ltd with a five-year loan to finance the construction of a new sporting stadium. Good Sport had the choice of paying a market rate of interest (7.5% at the inception of the loan) or paying interest at a rate of 1.5% below the market rate, and paying in addition a fixed 'arrangement fee' of $200 000 to compensate Big Bank for charging an interest rate below the fair market value. Good Sport chose the second option. Big Bank should recognise revenue from the arrangement fee as: a. fee revenue as services are provided by Big Bank b. fee revenue on the completion of the significant act of drawing down the loan c. interest revenue on the completion of the significant act of drawing down the loan d. interest revenue over the life of the loan in accordance with the effective interest method.

D

15. Which of the following statements is NOT an indicator of the transfer of the control of an asset to a customer? A. The entity has a present right to payment for the asset. B. The entity has transferred physical possession of the asset. C. The customer has legal title to the asset. D. When goods or services are exchanged or swapped for goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.

D

17. Where a market has both a bid and an ask process, the price used in measuring fair value is: a. the bid price b. the ask price c. the bid-ask spread d. the most representative price for the transaction.

D

19. IASB (2011) requires an entity to recognise revenue for a performance obligation satisfied over time only if the entity can: A. reasonably measure with complete satisfaction the performance obligation. B. reasonably measure its expected revenue of the performance obligation. C. reasonably measure its expected costs of the performance obligation. D. reasonably measure its progress towards complete satisfaction of the performance obligation.

D

19. Which of the following is NOT an example of an entity retaining significant risks and rewards of ownership? a. The entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions. b. The receipt of revenue from a particular sale is contingent on the buyer reselling the goods. c. The goods are shipped subject to installation, and the installation is a significant part of the contract that has not yet been completed by the entity. d. The buyer has the right to rescind the purchase for a reason specified in the sales contract. The entity is confident that this option will not be exercised.

D

2. The two elements of performance referred to in the Conceptual Framework are: a. assets and liabilities b. revenue and expenses c. liabilities and equity d. expenses and income

D

2. Until recently, accounting standards issued by the IASB (formerly IASC) were: A. the most well developed set of accounting standards and used widely around the world. B. deemed to be 'best practice' and always used as a guide when another country was developing its own standards. C. not that important as they were only designed for European economies. D. frequently adopted directly by developing countries that did not have their own standard-setting processes.

D

21. Which of the following is incorrect in relation to consignment sales? a. A consignment sale is one where the owner transfers possession of the goods but not legal title to a third party (agent). b. On sale of an item held on consignment, the agent remits the proceeds to the owner (normally less commission). c. The owner will recognise revenue on consignment sales at the time of sale of the item to the ultimate customer. d. Consignment sales are a common way of increasing revenue at or near the end of a period.

D

23. Melville Ltd received a material claim for damages from a customer for not delivering ordered goods on time. The customer insists that Melville Ltd's late delivery resulted in significant losses to the customer. Melville Ltd admits to the delay but disputes the material damages being claimed. What is the appropriate accounting treatment for the claim that is in accordance with NZ IAS 37? A. Ignore the claim. B. Recognise the minimum amount of the liability. C. Recognise the maximum amount of the liability. D. Recognise the best estimate of the liability.

D

23. The introduction of IFRIC 13 Customer Loyalty Programmes had the following impact on revenue recognition policies for entities in the airline industry: a. no impact b. reduced the amount of revenue able to be recognised c. increased the amount of revenue able to be recognised d. changed the timing of the recognition of revenue

D

24. Which of the following is an indication of an active market? a. there are few recent transactions b. price quotations vary substantially over time c. price quotations vary substantially among market-makers d. price quotations are based on current market information.

D

27. Complete the following New Zealand Framework definition of 'income'. 'Increases in __________ during an accounting period in the form of inflows or enhancements of assets or decreases of __________ that result in increases in __________, other than those relating to __________ from the equity participants'. A. service potential; equity; assets; contributions B. assets; assets; equity; distributions C. economic benefits; liabilities; capital; revenue D. economic benefits; liabilities; equity; contributions

D

29. The fair value of an equity instrument is based on determining a/an _________ price which may relate to the price paid for an entity to repurchase its shares. a. transfer b. settlement c. entry d. exit.

D

36. The earnings cycle includes various revenue recognition points, including the following. (5) Progressively throughout production; (7) receipt of orders after completing production; (8) delivery of goods to customers; and (9) receipt of cash. At what point are instalment credit sales recognised? A. (5) progressively throughout production B. (7) receipt of orders after completing production C. (8) delivery of goods to customers D. (9) receipt of cash

D

43. Under what circumstances would a call option have no value? A. When at year end the market price of the security is above the option exercise price. B. When at year end the market price of the security is below the option price. C. When at exercise date the market price of the security is above the option exercise price. D. When at exercise date the market price of the security is below the option exercise price.

D

43. Which of the following bodies report to the IFRS Foundation? a. The IASB and AASB b. The IASB, AASB and the IFRS Advisory Council c. The IASB and the FASB d. The IASB and the IFRS Advisory Council

D

46. The measurement method most commonly used in the preparation of financial statements is: a. present value; b. current replacement cost; c. discounted future cash flows; d. historical cost.

D

46. What type of account is 'unearned revenue'? A. Contra asset B. Contra revenue C. Expense D. Liability

D

48. Included in a statement of changes in equity are the following items: I Opening and closing balances. II Profit or loss for the period. III Gains or losses not recognised in the statement of profit or loss and other comprehensive income. IV New share issues. V Dividends paid. a. I, II & III only b. II, III and IV only c. I, IV and V only. d. I, II, IV and V only.

D

48. Which of the following is not one of the disclosures required by NZ IAS 18 with regard to revenue? A. The amount of each significant category of revenue recognised during the period. B. The amount of revenue arising from exchanges of goods or services included in each significant category of revenue. C. The accounting policies adopted for the recognition of revenue. D. The timing of when revenue was recognised for each significant category of revenue.

D

49. Which of the following note disclosures are NOT required by IAS 1? a. Sources of estimation uncertainty in relation to impairment of assets b. Dividends declared after end of reporting period but before the financial statements are authorised for issue c. the country of incorporation of the entity d. the names and qualifications of all directors of the entity

D

5. Which of the following are excluded from the scope of IAS 18? I the initial recognition of agricultural produce II insurance contracts within the scope of IFRS 4 III the extraction of mineral ores IV lease agreements a. I, II only b. II, III and IV only c. I, III and IV only d. I, II, III and IV

D

9. Which of the following is NOT a condition that needs to be satisfied prior to recognising revenue from the rendering of services using the 'percentage of completion' method? a. the amount of revenue can be measured reliably b. the stage of completion of the transaction can be measured reliably c. the costs of the transaction (including future costs) can be measured reliably d. the contract is non-cancellable.

D

The XRB's responsibilities include: A. developing accounting standards that have the force of law under the Financial Market Conduct Act 2013. B. setting ethical guidelines for the accounting profession. C. formulating standards to be used by the entities in the public sector. D. developing accounting standards that have the force of law under the Financial Market Conduct Act and formulating standards to be used by the entities in the public sector

D

Until recently, accounting standards issued by the IASB (formerly IASC) were: A. the best developed set of accounting standards and used widely around the world. B. deemed to be 'best practice' and always used as a guide when another country was developing its own standards. C. not that important as they were only designed for European economies. D. frequently adopted directly by developing countries that did not have their own standard-setting processes.

D

10. The primary qualitative characteristics of financial information identified in the NZ Framework include: A. understandability, relevance, reliability and comparability. B. materiality, prudence, comparability and reliability. C. consistency, relevance, comparability and prudence. D. comparability, fairness, relevance and materiality.

A

10. Which of the following is not an example of a level 2 input? a. a financial forecast of cash flow or earnings b. quoted prices for identical or similar assets or liabilities in markets that are not active c. inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves, volatilities, prepayment speeds, and credit risks d. inputs that are derived from or corroborated by observable market data by correlation or other means.

A

23. Which of the following statements is INCORRECT? a. The International Accounting Standards Board was replaced by the International Standards Committee in 2001. b. The International Accounting Standards Board is funded by the IASC Foundation. c. The responsibility for issuing International Financial Reporting Standards lies with the International Accounting Standards Board. d. Members of the International Accounting Standards Board are appointed by the IFRS Foundation.

A

25. Which of the following statements is CORRECT? a. IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors requires that The Framework be followed in the absence of a specific standard or interpretation. b. IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors recommends, but does not require The Framework to be followed in the absence of a specific standard or interpretation. c. The Framework is used solely by the IASB when considering new accounting issues. d. The Framework is non-binding guidance which does not have to be followed by preparers of financial statements.

A

20. A primary difference between the content of the older Statement of Concepts and the NZ Framework is that: A. prudence is emphasised in the older statement of concepts but not in the NZ Framework. B. the older statement of concepts uses the term 'revenue' while the NZ Framework uses the term 'income' which includes both revenue and gains. C. the older statement of concepts is based on the IASB framework whereas the NZ Framework is not. D. the definition of reporting entity is much narrower in the older statement of concepts than in the NZ Framework.

B

20. Which of the following does Whittington (2008) see as a main feature of the fair value view? a. Stewardship, defined as accountability to present shareholders, is a distinct objective, ranking equally with decision usefulness. b. Reliability is less important and is better replaced by representational faithfulness, which implies a greater concern for capturing economic substance, and less with statistical accuracy. c. Present shareholders of the holding company have a special status as users of financial statements.

B

22. A criticism of conventional financial reporting is that: A. it is not consistent with NZ framework. B. it can portray organisations that pollute the natural environment as being very successful. C. it does not ignore events that have not involved market transactions. D. it recognises damage done to the natural environment caused by business and therefore records lower profits.

B

24. Which of the following statements is INCORRECT? a. The Framework identifies the qualitative characteristics that make information in financial statements useful. b. The Framework defines principles for accounting recognition, measurement and disclosure. c. The Framework defines the objective of financial statements. d. The Framework defines the basic elements of financial statements and the concepts for recognizing and measuring them in financial statements.

B

29. Which of the following statements is INCORRECT? a. Information about the variability of profits helps in forecasting future cash flows from an entity's existing resources. b. Performance of an entity is determined solely through examination of the Statement of Profit or Loss and Other Comprehensive Income of an entity. c. An entity's Statement of Cash Flows provides insight into changes in assets and liability balances during an accounting period. d. The Statement of Financial Position presents information relating to economic resources, the financial structure of an entity, liquidity and solvency and capacity to adapt to changes in an entity's environment.

B

3. Which of the following is the definition of fair value per IFRS 13? a. The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction b. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. c. The price that would be received to sell an asset or paid to transfer a liability. d. A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (eg a forced liquidation or distress sale).

B

32. Which category of user is most likely to be interested primarily in the Statement of Profit or Loss and Other Comprehensive Income of an entity? a. suppliers and trade creditors b. shareholders c. employees d. lending institutions

B

40. When recognising revenue from the rendering of services in accordance with IAS 18 Revenue a. Revenue arising from the rendering of services can only be recognised when all of the recognition criteria in paragraph 20 have been satisfied. b. The method for recognising revenue from the rendering of services when all of the paragraph 20 recognition criteria have been met is referred to as the 'percentage-of-completion' method. c. IAS 18 requires that revenue from the rendering of service be recognised on an accruals basis. d. The method for recognising revenue from the rendering of services is referred to in IAS 18 as the 'cost recovery' approach.

B

51. In accordance with the conceptual framework, income is recognised in the statement of profit or loss and other comprehensive income when: a. an decrease in future economic benefits relating to an decrease in an asset or an increase in a liability can be measured reliably. b. an increase in future economic benefits relating to an increase in an asset or a decrease in a liability can be measured reliably. c. an increase in future economic benefits relating to an increase in an asset can be measured reliably. d. an increase in future economic benefits relating to an decrease in an asset or a increase in a liability can be measured reliably.

B

52. Expenses are recognised in the statement of profit or loss and other comprehensive income when a. increase in future economic benefits related to a increase in an asset or an increase in a liability can be measured reliably. b. a decrease in future economic benefits related to a decrease in an asset or an increase in a liability can be measured reliably. c. a decrease in future economic benefits related to a decrease in an asset or an decrease in a liability can be measured reliably. d. none of the options are correct.

B

63. In relation to an asset revaluation surplus, an entity a. is not able to use this surplus for the payment of future dividends b. is able to use this surplus for the payment of future dividends c. is not able to transfer this surplus to any other reserve account d. can transfer the surplus to current period profit or loss when the asset is disposed of

B

66. IAS 1 Presentation of Financial Statements requires the following items to appear on the face of the Statement of Changes in Equity I The net amount of cash from the issue of any securities during the period II The cumulative effect of changes in accounting policy and the correction of errors III Each item of income or expenses that are required to be recognised directly in equity IV Profit or loss for the period. a. I, II, III and IV b. II, III and IV only c. I, III and IV only d. II and IV only

B

67. Laws in relation to share buy-backs are primarily designed to protect the interests of the company's: a. shareholders b. creditors c. directors d. option holders

B

7. The market with the greatest volume and level of activity for the asset or liability is defined as the: a. active market b. principal market c. liquid market d. most advantageous market

B

70. Gains or losses that arise as a result of translating foreign currency denominated operations into the reporting currency are recognised in income: a. in the reporting period in which they arise; b. only when the interest in the foreign operation is sold; c. only if they are material items; d. only when they are settled in cash.

B

75. In relation to share capital, IAS 1 does not require disclosure in the financial report of: a. the number of shares on issue at the end of the year b. the amount of any over or under subscription of new share issues during the year c. restrictions on dividends payable to certain classes of shareholders d. the total dollar value of share capital at the end of the year

B

8. The NZ Framework refers to the: A. New Zealand Framework for Accounting Standards. B. New Zealand Framework for the Preparation and Presentation of Financial Statements. C. New Zealand Framework for Financial Reporting Legislations. D. New Zealand Framework for Management Accounting.

B

31. Which of the following income and expense items is NOT recorded initially directly in equity? a. The impairment of goodwill in accordance with IAS 36 Impairment of Assets, where the entity is confident that the factors giving rise to the impairment will reverse in a future period. b. An increase in the fair values of land & buildings, where the revaluation method is used to account for land & buildings in accordance with IAS 16 Property, Plant & Equipment. c. A change in the fair value of an investment in another entity, which is classified as an available for-sale financial asset in accordance with IAS 39 Financial Instruments: Recognition & Measurement. d. Foreign currency translation adjustments arising on the translation of a foreign operations financial statements from their functional currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates.

A

36. Which of the following statements in relation to income is true? a. Gains are normally reported separately from revenue in the Statement of Profit or Loss and Other Comprehensive Income due to the different probabilities attached to that type of income. b. The Framework requires that all items of income are reported on a net basis. c. Gains and revenue are different in nature and therefore are recognised as separate elements of the financial statements per The Framework. d. The Framework defines income as an increase in economic benefits which results in an increase in equity.

A

9. The purpose of the NZ Framework is to assist the FRSB (Financial Reporting Standards Board): A. to review and develop New Zealand equivalents to International Financial Reporting Standards. B. to approve New Zealand Equivalent to International Financial Reporting Standards. C. to form an opinion whether financial statements conform with financial reporting standards. D. to interpret the information contained in financial statements.

A

A general purpose financial statements means: A. a financial report intended to meet the information needs of users who are unable to command the preparation of special purpose reports. 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 preparers. D. 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.

A

The International Accounting Standards Board (IASB) website explains how the IASB believes its relationship with national standards setters should be conducted. It notes that: A. there should be close coordination between the due process of the IASB and the process of national standard-setters. B. the IASB will inform national standard-setters of directions they should take, projects they should undertake and the outcomes that are expected of them. C. 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. D. 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.

A

Which of the following most accurately describes the process of issuing an IASB standard? A. 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. if write, need to remember- YES 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 comment. A final IFRS is then issued based on previous feedback along with Basis 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 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.

A

11. Select the incorrect statement. A. Information is regarded as relevant if it influences the economic decision of users. B. Information is considered understandable if it is likely to be understood by users who do not have any business or accounting knowledge. C. The qualitative characteristic of comparability is concerned with consistency in the application of methods of measurement and disclosure of financial information. D. Information is reliable if it is free from material bias and error.

B

12. Which of the following steps in not relevant when valuing liabilities? a. the particular liability that is the subject of the measurement b. the valuation premise that is appropriate for the measurement c. the principal (or most advantageous) market for the liability d. the valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value hierarchy within which the inputs are categorised.

B

13. When measuring the fair value of a liability, which of the following is assumed? a. the liability is settled by the holder b. the liability will be settled by the market participant c. the liability will not be settled d. the liability is settled with the counterparty on measurement date

B

14. Which of the following represent the characteristics of income as defined in the NZ Framework? A. Decreases in economic benefit, outflows or depletions of assets or increases in liability, decreases in equity B. Increases in economic benefit, inflows or enhancements of assets or decreases in liability, and increases in equity C. Increases or enhancements in asset, liability and equity D. Probable future economic benefits which cannot be measured reliably

B

15. In which circumstance will it be necessary to determine the fair value of an entity's own equity instruments? a. where the entity is preparing for listing b. where the entity undertakes a business combination and issues its own equity instruments in exchange for a business c. where the entity undertakes a share buy-back d. where there is a change in the shareholding of the entity.

B

16. Which of the following is not assumed when measuring the fair value of an equity instrument? a. The market participant transferee will take on the rights and responsibilities associated with the instrument b. An entity's own equity instruments are transferred to a market participant at transfer date c. An entity's own equity instrument would remain outstanding d. The instrument would not be cancelled or otherwise extinguished on the measurement date.

B

18. Alternative measurement bases to measure assets and liabilities include: A. mixed method, market cost, market values, recent cost and sales value. B. historical cost, current replacement cost, current market value, net realisable value and present value. C. book value, carrying value, retrospective value, prospective value and market value. D. surrogate value, accounting value, historical cost, implicit value and balance sheet value.

B

16. The adoption of International Financial Reporting Standards (IFRSs) will lead to significant changes in some accounting standards. Which of the following does not represent one such significant change? A. Internally generated intangible assets are no longer recognisable B. Revaluations of property, plant and equipment on an asset-by-asset basis. C. Annual tests to be undertaken to determine whether the value of goodwill has been impaired. D. Goodwill is to be systematically amortised.

D

16. The characteristics of reliable financial statements include: A. consistency, comparability, truthfulness and relevance. B. fairness, consistency, relevance and objectivity. C. biasness, understandability, consistency and relevance. D. faithful representation, neutrality, prudence and materiality.

D

1. Which of the following is not one of the key reasons given by the IASB for issuing a standard on fair value measurement? a. to establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application; b. to clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly; c. to require the use of fair value when accounting for all non-financial assets d. to enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values.

C

11. Trademarks would be measured primarily using which type of inputs? a. Level 1 inputs b. Level 2 inputs c. Level 3 inputs d. Level 4 inputs

C

12. Which of the following represents the elements of financial statements as defined in the NZ Framework? A. Journals, ledgers, cash book, and bank statement B. Balance sheet, income statement, cash flow statement and equity statement C. Assets, liabilities, expenses, income and equity D. Comparability, understandability, relevance and reliability

C

14. Where a liability is held as a corresponding asset by another entity the fair value of the liability is determined by: a. applying a present value technique to measure the liability b. applying the cost approach to valuing the liability c. measuring the fair value of the corresponding asset d. determining the amount required to settle the present obligation

C

15. In the absence of NZ IFRS that specifically applies to a transaction, the management of a reporting entity: A. should not report on that transaction. B. should make a formal complaint to the Accounting Standards Review Board. C. should use its judgement in developing and applying an accounting policy. D. should avoid the transaction and only carry out transactions that are recommended by NZ IFRS.

C

18. An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as: I they hold a net long position II they hold a net short position III they have a documented risk management strategy IV the manage the group of net financial assets and liabilities on a net exposure basis V. transactions are conducted in an orderly market a. I and III b. II and IV c. III and IV d. II and V

C

19. The implication of New Zealand's decision to adopt International Accounting Standards includes: A. the adoption older New Zealand Statement of Concepts in the development of accounting standards. B. the abandonment of the NZ Framework. C. the adoption of the IASB Framework by New Zealand. D. the abandonment of the IASB Framework by New Zealand.

C

28. Which of the following statements is INCORRECT in relation to the preparation of financial statements? a. General Purpose Financial Statements must be prepared in accordance with accounting standards. b. General Purpose Financial Statements are reports intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to specifically meet all their information needs. c. The sole objective of a General Purpose Financial Statement is to serve an economic decision making objective. d. The objective of a General Purpose Financial Statement is to provide information useful to users for making and evaluating decisions about the allocation of scarce resources.

C

33. The four principal qualitative characteristics that make information in financial statements useful to investors identified within The Framework are: a. Relevance, reliability, timeliness and comparability b. Timeliness, reliability, relevance and understandability c. Comparability, understandability, relevance and reliability d. Comparability, understandability, timeliness and reliability

C

34. Accounting information that is complete is an example of information that satisfies which of the following characteristics of financial information identified in The Framework? a. Understandability b. Relevance c. Reliability d. Comparability

C

39. Which of the following is NOT a criteria for recognition of revenue from the sale of goods under IAS 18 Revenue? a. The seller has transferred the significant risks and rewards of ownership to the buyer. b. The costs incurred, or to be incurred, in respect of the transaction can be measured reliably. c. The stage of completion at the statement of financial position date can be measured reliably. d. The amount of revenue can be measured reliably.

C

44. If management intends to liquidate the entity's operations, financial statements are prepared on the basis of a. Historical cost b. Historical cost with a note that the entity is about to liquidate c. Expected liquidation values d. Financial statements do not have to be prepared.

C

45. The IASB conceptual framework for financial reporting describes the basic concepts that underlie financial statements and defines: a. the principles for measurement; b. disclosure principles; c. the elements of financial statements d. accounting recognition criteria.

C

21. A common criticism of conceptual frameworks is: A. the focus on corporate social responsibility and lack of focus on economic responsibility. B. the focus on measurement of social performance and lack of focus on measurement of economic performance. C. focus on societal accountability and lack of focus on business accountability. D. the focus on accountability for economic performance and lack of focus on accountability for social performance.

D

50. A liability is defined in conceptual framework as: a. possible obligation of the entity, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. b. a possible obligation of the entity expected to arise from future events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. c. a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. d. a present obligation of the entity arising from past events, the settlement of which is expected to result in an inflow to the entity of resources embodying economic benefits.

C

59. Which of the following journal entries demonstrates the appropriate accounting treatment for share issue costs? a. Dr Deferred asset: Cr Cash; b. Dr Cash: Cr Deferred asset; c. Dr Share capital: Cr: Cash; d. Dr Cash: Cr Share capital.

C

60. The bonus issue of shares has the following impact on the equity of a company; a. total equity increases; b. total equity decreases; c. one equity account increases and another equity account decreases by an equal amount; d. only the amount of issued share capital changes.

C

64. The balance in the retained earnings account is affected by the transfer to that account of: I Issued share capital II dividends paid or provided for III Transfers to or from other reserve accounts IV Changes in accounting policies and errors a. II and III only b. I, II and III only c. II, III and IV only d. I, II, III and IV

C

7. Which of the following is not a component of the qualitative characteristic of reliability? A. Representational faithfulness B. Prudence C. Timeliness D. Neutrality

C

73. IAS 1 requires that a reconciliation between the carrying amount of each class of contributed equity capital and each reserve at the beginning and end of each period be disclosed in: a. the Statement of Changes in Equity only; b. the notes only; c. either the Statement of Changes in Equity or the notes; d. Statement of Profit or Loss and Other Comprehensive Income.

C

76. IAS 1 requires that information in relation to dividends paid or declared during the year be disclosed in: a. the Statement of Changes in Equity only; b. the notes only; c. either the Statement of Changes in Equity or the notes; d. the Statement of Comprehensive Income

C

Complete the definition of 'materiality' as provided in the NZ Framework paragraph 30. 'Information is material if its omissions or __________ could __________ the __________ of users taken on the basis of the financial statements.' A. incorrect disclosure; alter; financial decisions B. overstatements; affect; economic decisions C. misstatements; influence; economic decisions D. erroneous disclosure; manipulate; resource allocation decisions

C

Differential reporting is based on: A. small and large proprietary companies having the same requirements to comply with accounting standards in the preparation of financial reports. B. the burden of additional reporting for some organisations in situations where there were questionable benefits to report preparers. C. the difference between the ability of shareholders in 'small' and those in 'large' companies to request information to satisfy their specific needs. D. none of the answers provided.

C

In accordance with NZ IAS 1 Presentation of Financial Statements, a financial report comprises: A. a statement of financial position, an income statement and cash flow statement. B. a statement of financial position, an income statement, a statement of changes in equity and a cash flow statement. C. a statement of financial position, an income statement, a statement of changes in equity, a cash flow statement and notes to the accounts. D. a statement of financial position, an income statement, a cash flow statement and notes to the accounts.

C

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? A. Directors may elect not to comply with the standard. B. Directors may exercise the 'true and fair view override'. C. Directors may disclose the standard in question, the nature of conflict and adjustments made. D. All of the answers provided are correct.

C

Which of the following statement(s) is/are true with respect to the differences between IFRS and US generally accepted accounting principles (GAAP)? A. There are no differences between IFRS and US GAAP. B. There are only slight differences between IFRS and US GAAP. 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 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

d. Future cash flows may be endogenous: feedback from shareholders and markets in response to accounting reports may influence management decisions. 21. Which are the two most common measures used in Accounting Standards? a. fair value less costs to sell and cost b. value in use and cost c. cost and fair value d. net realisable value and fair value.

C

22. Which of the following is the definition of exit price per IFRS 13? a. A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (e.g. a forced liquidation or distress sale). b. The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction c. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. d. The price that would be received to sell an asset or paid to transfer a liability.

D

27. General Purpose Financial Statements: a. are only necessary for users who do not have the power to obtain information in addition to that contained within the General Purpose Financial Statement. b. provide all the information that users may need to make economic decisions. c. focus on disclosing information relevant to assessing the ability of an entity to generate future cash flows. d. meet the information needs that are common to all users.

D

37. Which of the following statements is INCORRECT in relation to the recognition criteria for elements of the financial statements? a. Assets are recognised when it is probable that future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. b. Because equity is the arithmetic difference between assets and liabilities, a separate recognition criteria for equity is not needed in The Framework. c. Liabilities are recognised when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which settlement will take place can be measured reliably. d. Income is recognised when an increase in future economic benefits related to a decrease in an asset or an increase in a liability that has arisen can be measured reliably.

D

38. In relation to the concept of recognition of an item in the financial statements: a. Items of equity must satisfy both the probability and measurement criteria before they can be recognised. b. Assets can only be recognised where there is a high probability of future economic benefits flowing to the entity. c. Expenses are recognised when a decrease in a future economic benefit related to an increase in an asset or a decrease in a liability has arisen that can be measured reliably. d. For items to qualify for recognition in the financial statements as liabilities or income they must first satisfy the definition of an element, and then meet both the probability and measurement requirements in relation to recognition.

D

47. The qualitative characteristics that make financial information useful for decision-making include: I II III IV comparability Yes Yes No Yes relevance Yes Yes No Yes understandability Yes No No Yes unreliability Yes No No No a. I; b. II; c. III; d. IV.

D

5. Criticisms of the conceptual framework include all of the following except: A. accountability seems to be limited to the organisations' stewardship over financial resources. B. it represents a codification of existing practice. C. it represents a strategic manoeuvre for providing legitimacy to standard-setting bodies. D. it does not act as a device to legitimise the ongoing existence of the accounting profession.

D

53. For-profit companies may be I Unlimited II Listed III Limited by guarantee IV No-liability a. II and III only b. I, II and III only c. II, III and IV only d. I, II, III and IV

D

56. When a public share issue is made, the offer comes from: a. the company issuing the shares; b. the relevant oversight body once it has reviewed the prospectus documentation; c. the broker handing the share issue for the company; d. the applicant.

D

58. The appropriate account to record any excess proceeds received and retained (not refunded) by a company from an oversubscription to a share offer application, is the: a. Share issue costs account; b. Forfeited Shares account; c. Share capital account; d. Calls in advance account

D

6. Under what circumstances will New Zealand continue to develop unique New Zealand accounting standards? A. Under no circumstances. B. When the IFRS presents fewer options than the previously developed New Zealand standard. C. When the ASRB is of the view that adopting the IFRS would not lead to a 'true and fair' view. D. When areas of a domestic nature have not yet been addressed by the International Accounting Standards Board.

D

65. Dividends declared after the balance date but before the financial statements are authorised for issue: a. meet the criteria for recognition as a liability b. satisfy the criteria for recognition as an expense c. are recognised in the Statement of Financial Position as they meet the definition of equity d. do not meet the IAS 37 criteria of a present obligation.

D

Arguments against the regulation of accounting information include: A. mandated disclosures are cheap to provide and by their nature will devalue the worth of the information being provided. B. by making so many choices of accounting methods available under the standards, the efficiency with which the information is provided will be enhanced. C. 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). D. managers of the organisation are in the best place to determine what information should be produced to increase the confidence of external stakeholders.

D

In adopting International Financial Reporting Standards (IFRSs), the XRB has: A. embraced the IFRSs without change. B. been disbanded as it is no longer required. C. used the IFRSs only as a foundation for its own set of standards and has identified where these own standards do not comply with IFRSs. D. issued its own standards and 're-badged' them as NZ IASs.

D

Which of the following is not the reason for the decision by External Reporting Board to adopt of International Financial Reporting Standards (IFRS)? A. The decision by the XRB to adopt the IFRS. B. Failure to adopt IFRS would be costly. C. Failure to adopt IFRS could place at risk the credibility of financial reporting in New Zealand. D. The standard setting process in New Zealand was not acceptable to the International Accounting Standards Board.

D