Final Preboar1

THEORY OF ACCOUNTS 1. The name that is now used for standards issued by the International Accounting Standards Board is: a. International Accounting Standards (IAS); b. International Generally Accepted Accounting Principles (IGAAP); c. International Financial Accounting Interpretations (IFAI) d. International Financial Reporting Standards (IFRS). ANS: D 2. The responsibilities of the International Financial Reporting Interpretations Committee include: I. Report to the IASB and obtain its approval for final interpretations. II. Interpret the application of IFRS. III. Provide timely guidance on financial reporting issues not addressed in IFRS or IAS. IV. Publish draft interpretations for public comment. V. Consider comments made on interpretations before finalising an interpretation. a. I, II, III, IV and V; b. I, II and III only; c. II, III, and IV only; d. III, IV and V only. ANS: A 3. A document that contains disclosures including financial statements, that is issued to potential investors, by companies seeking capital, is known as a: a. securities statement; c. trust deed; b. company constitution; d. prospectus. ANS: D 4. Under IFRS 2 Share-based Payment, the method that must be used to measure employee stock options and other payments given to employees in the form of equity securities, is: a. initial cost; c. discounted cash flows; b. fair value; d. selling price. ANS: B 5. A company is regarded as a first-time adopter of International Financial Reporting Standards if, for the first time, it makes an explicit and unreserved statement that: a. its general purpose financial statements comply with IFRS; b. it has prepared its financial statements using national GAAP; c. it has selected accounting policies that are based on IFRS in force prior to 31 December 2005; d. it will prospectively adjust its comparative financial statements by applying IFRS in force at 1 January 2006. ANS: A 6. International Financial Reporting Standards are applicable to the following entities: a. not-for-profit entities; b. government activities c. government business enterprises d. public sector non-profit organizations ANS: C 7. The standards of the International Auditing and Assurance Standards Board include international standards on: I. Quality control. II. Auditing. III. Review Engagements. IV.Assurance Engagements. a. I, II and III only; c. II, II, III and IV. b. I, III and IV only; d. II, II and IV only; ANS: C 8. Information about the sources and uses of an enterprise’s cash and cash equivalents is provided in the: a. income statement; c. statement of changes in equity; b. cash flow statement; d. balance sheet. ANS: B 9. The IASB Framework outlines two underlying assumptions of financial statements. These are: Assumption 1 Assumption 2 a. Accrual basis of accounting Going concern assumption; b. Cash basis of accounting Insolvency assumption; c. Historical cost accounting Limited life concept; d. Fair value basis of measurement Perpetual life concept. ANS: A 10. If financial information that is presented in a balance sheet or income statement is misstated, and it influences the economic decisions of users, that information is described as: a. reliable; c. Material b. prudent; d. faithful. ANS: C

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11. The IASB Framework identifies four principal qualitative characteristics that make the information in financial statements useful to investors, creditors and others. These characteristics are: I. Comparability. II. Relevance. III. Subjectivity. IV.Confidentiality. V. Understandability. VI.Reliability. a. I, II, III and IV c. II, IV, V and IV b. I, II, V, and IV. d. I, III, IV and VI; ANS: B 12. In respect to information included in financial statements, the accounting concept of ‘prudence’ ensures that: a. the financial statements report what they purport to report b. a degree of caution in the exercise of judgments about estimates is made: c. an appropriate balance is achieved between the relevance and the reliability of information that has been included; d. information is provided to users within the time period in which it is most likely to bear on their decisions. ANS: B 13. An item cannot be recognised in the balance sheet or the income statement unless it meets the two criteria of: Criterion 1 Criterion 2 a. Materiality Relevance to the users; b. Completeness Measurement reliability; c. Neutrality Representational faithfulness; d. Probable economic benefits Measurement reliability. ANS: D 14. The following statement: ‘decreases in economic benefits during the accounting period in the form of outflows or depletions of assets, or the incurrence of liabilities that result in decreases in equity other than those relating to distributions to equity participants’ provides a definition of: a. Expenses c. liabilities b. assets; d. income. ANS: A 15. The following definition ‘increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants’ is a formal statement of the meaning of: a. Assets c. liabilities; b. income; d. expense. ANS: B 16. When measuring the revenue from dividends, IAS 18 Revenue, allows the recognition of dividend revenue only when: a. the revenue has been realised b. the cash is received c. when the right to receive payment is established; d. the dividend amount is determined and the dividend has been declared. ANS: C 17. So long as it is probable that the economic benefits will flow to the enterprise and the amount of revenue can be measured reliably, revenue from royalties should be recognised on: a. an accruals basis c. the cash basis of accounting b. the net present value of cash flows d. a percentage of completion basis. method; ANS: A 18. According to IAS 18 Revenue, the revenue from ‘interest’ should be recognised using the following measurement basis: a. the accrual basis c. the cash basis; b. a time proportionate basis that takes into d. the historical cost basis account, the effective yield; ANS: B 19. The measurement basis ‘net realisable value’ is best described as: a. unamortised historical cost; c. unadjusted initial cost; b. time adjusted cash flow. d. an asset’s selling price or a liability’s settlement amount; ANS: D 20. When a public share issue is made, the offer comes from: a. the company issuing the shares; b. the applicant. c. the broker handing the share issue for the company; d. the Australian Securities and Investments Commission once it has reviewed the prospectus documentation; ANS: B

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21. The bonus issue of shares has the following impact on the equity of a company; a. total equity increases; b. total equity decreases; c. only the amount of issued share capital changes. d. one equity account increases and another equity account decreases by an equal amount; ANS: D 22. A company issued share option is an instrument that gives the holder the right but not the obligation to: a. receive a certain dividend declared by the company by a specified date; b. receive a bonus issue of shares in a proportion as notified by the company c. sell a certain number of shares in the company by a specified date at a stated price; d. buy a certain number of shares in the company by a specified date at a stated price; ANS: D 23. Dividends declared after the balance sheet date but before the financial statements are authorised for issue: a. meet the criteria for recognition as a liability; b. do not meet the IAS 37 criteria of a present obligation. c. are recognised in the balance sheet as they meet the definition of equity; d. atisfy the criteria for recognition as an expense ANS: B 24. IAS 10 Events after the Balance Sheet Date, states that if a dividend is declared after the balance sheet date but before the financial statements are authorised for issue, the dividend is: . a. recognised as a liability at the balance sheet date; b. not recognised as a liability at the balance sheet date c. recorded as a direct reduction of equity at the balance sheet date; d. recorded as a reduction against the asset ‘cash’ at balance sheet date ANS: B 25. 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. V. Interest paid to debenture holders. a. I, II and III only; c. I, II, III and IV only; b. II, III and IV only; d. II, III and V only. ANS: B 26. Under IAS 16 Property, Plant and Equipment, an entity may choose to measure assets using the revaluation model. If this model is chosen, revaluation increments are recognised: a. in profit or loss of the period in which the revaluation is undertaken b. as a deferred credit in the balance sheet c. directly in equity; d. as an increase in the balance of the relevant accumulated depreciation account ANS: C 27. 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 the income statement when the asset is disposed of ANS: B 28. According to IAS 39 Financial Instruments: Recognition and Measurement, gains and losses on available-forsale financial assets are recognised: a. directly in equity until the financial asset is derecognised b. in profit or loss of the period c. as part of interest revenue or interest expense of the period d. as deferred liabilities or assets until derecognised. ANS: A 29. 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 is required to be recognised directly in equity. IV. Profit or loss for the period. a. I, II, III and IV c. I, III and IV only; b. II, III and IV only; d. II and IV only. ANS: B 30. The components of equity generally recognised by companies in a balance sheet are: I. Provisions. II. Debentures III. Share capital. IV. Other reserves. V. Retained earnings. a. I, II and III only; c. I, III, IV and V only b. III, IV and V only. d. II, III and V only;

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ANS: B 31.According to IAS 37 Provisions, Contingent Liabilities and Contingent Asset, when providing for the future a future event such as the clean-up of a contaminated site, gains and other cash inflows that are expected to arise on the sale of asset related to the clean-up, must be treated as follows: a. set-off against the provision for the clean-up b. recognised as a deferred asset c. recognised directly in equity in the period in which the cash inflows arose; d. measured separately of the provision ANS: D 32. The following is statement made in IAS 37 Provisions, Contingent Liabilities and Contingent Assets: ‘a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it’. This statement provides a definition of: a. an onerous contract; c. a future operating loss b. a present obligation. d. a deferred liability; ANS: A 33. McCann Limited announced its plans for a major restructuring of its operations. Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the entity is able to: a. capitalise all direct and indirect restructuring costs; b. provide for restructuring costs that are associated with the ongoing activities of the entity. c. set up a provision for the best estimate of all restructuring costs; d. provide only for restructuring costs that are directly and necessarily caused by the restructuring; ANS: A 34. Purcell Limited is a manufacturer of swimming pools and provides its customers with warranties at the time of sale. The warranty applies for three years from the date of sale. Past experience shows that there will be some claims under the warranties. The appropriate treatment of this items under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, is to: a. Note disclosure is required, but do not recognise in the financial statements; b. recognise the best estimate of costs as a provision; c. charge the costs directly to profit or loss in the period in which the economic outflows occur; d. transfer the expected amount of the warranty from retained earnings to a special reserve account in equity. ANS: B 35. A railway company is required, under law, to overhaul its rail-tracks every three years as a safety measure. The appropriate treatment of this event for the purposes of preparing financial statements is: a. recognise as a provision for future maintenance costs; b. estimate the future maintenance costs and charge as depreciation over the next three years; c. disclose in the notes as a contingent liability, but do not recognise; d. estimate the future cash outflows and discount to determine the amount to be recognised as a deferred liability. ANS: B 36. At balance sheet date, Raschella Limited was awaiting the final details of a court case for damages awarded in its favour. The amount and possible receipt of damages is unknown and will not be decided until the court sits again in several months time. How is this event dealt with in the preparation of the financial statements? a. recognise as a deferred asset in the balance sheet and re-classify as a non-current asset when the court decision is known. b. disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control; c. do not recognise or disclose in the financial statements as the possibility of receiving damages is remote; d. recognise as an asset in the financial statements as the receipt of damages is probable; ANS: B 37. In respect to a contingent liability, IAS 37 Provisions, Contingent Liabilities and Contingent Assets, requires disclosure of a. an indication of the uncertainties about the amount or timing of expected outflows. b. The carrying amount at the beginning and end of the period; c. any increase in the contingent liability during the period; d. an estimate of its financial effect; ANS: A 38. Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the appropriate accounting treatment for future operating losses is to: a. not recognise such items in the financial statements; b. measure on the basis of estimated future cash flows. c. determine the cost and charge it directly against retained earnings; d. determine a reasonable estimate of the cost and provide for the future liability;

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ANS: A 39. According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the appropriate treatment for a contingent asset in the financial statements of en entity is: a. do not recognise in the financial statements, and do not disclose in the notes b. recognition in the financial statements, but no further disclosure in the notes; c. recognition in the financial statements, and note disclosure d. disclosure of information in the notes, but do not recognise in the financial statements; ANS: D 40. Which of the following items is classified as a financial asset? a. ordinary shares of the issuer; c. Accounts receivable; b. loans payable (owed by the borrower) d. Inventory ANS: C 41. All of the following would be regarded as financial instruments except: a. bank overdraft; c. equipment. b. cash; d. notes payable; ANS: C 42. According to IAS 32 Financial Instruments: Disclosure and Presentation, which of the following items would be regarded as a financial liability? a. The right of a depositor to obtain cash from a financial institution with which it has deposited cash. b. a contractual right to exchange under potentially favourable conditions, an option to purchase shares below the market price; c. ordinary shares held in another entity; d. a contract that is a non-derivative for which the entity is obliged to deliver a variable number of its own equity instruments; ANS: D 43. All of the following are regarded as financial instruments: I. Deposits held by a financial institution; II. Ordinary shares; III. Raw materials inventories; IV. Property, plant and equipment. V. Accounts receivable and accounts payable. a. I, IV and V only. c. II, III and IV only; b. I, II and V only d. I, II, IV and V only; ANS: B 44. The following events provide objective evidence that a financial asset has been impaired: I. A default in interest payments. II. The borrower enters into bankruptcy. III. Significant financial difficulty of the issuer. IV. The downgrade of an entity’s credit rating. a. I, II and III only; c. II, III and IV only; b. I, III and IV only; d. II and IV only. ANS: A 45. IAS 39 Financial Instruments: Recognition and Measurement, requires that ‘Held-to-maturity’ investment be initially measured at: a. fair value; c. discounted future cash outflows; b. discounted future net cash flows. d. fair value plus transaction costs; ANS: D 46. Under IAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that: a. applied at the beginning of the reporting period; b. are expected to apply when the asset or liability is settled. c. at the rates that prevail at the reporting date; d. at the end of the reporting period; ANS: B 47. In jurisdictions where the impairment of goodwill is not tax deductible, IAS 12 Income Taxes: a. does not permit the application of deferred tax accounting to goodwill; b. allows the recognition of a deferred tax item in relation to goodwill; c. requires that any deferred tax items in relation to goodwill be recognised directly in equity; d. requires that any deferred tax items for goodwill be capitalised in the carrying amount of goodwill. ANS: A 48. When a deferred tax asset is subsequently recognised by an acquirer, the following adjustment is made: a. increase the carrying amount of goodwill; b. increase the carrying amount of the assets acquired. c. reduce the carrying amount of the assets acquired; d. reduce the carrying amount of goodwill; ANS: D

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49. Deferred tax assets must be recognised for deductible temporary differences and for tax losses, but only to the extent that: a. it is likely that future deductible expenses will be incurred; b. there is a chance that future deductible items will be incurred. c. it is possible that future taxable profits will be available; d. it is probable that future taxable profits will be available; ANS: A 50. The tax expense related to profit or loss of the period is required to be presented: a. on the face of the balance sheet; c. on the face of the income statement; b. in the cash flow statement; d. in the statement of changes in equity ANS: C 51. Unless a company has a legal right of set-off, IAS 12 Income Taxes, requires disclosure of all of the following information for deferred tax balance sheet items: I. The amount of deferred tax assets recognised. II. The amount of the deferred tax liabilities recognised. III. The net amount of the deferred tax assets and liabilities recognised. IV. The amount of the deferred tax asset relating to tax losses. a. I, II and IV only; c. IV only. b. III and IV only; d. I, II and III only; ANS: A 52. Where a business transaction requires a direct adjustment to an equity account, the tax effect is adjusted against: a. income; c. cash. b. equity; d. tax expense; ANS: B 53. The weighted average inventory costing method is particularly suitable to inventory where: a. homogeneous products are mixed together. b. goods have distinct use-by dates and the goods produced first must be sold earliest; c. the entity carries stocks of raw materials, work-in-progress and finished goods; d. dissimilar products are stored in separate locations; ANS: A 54. When an inventory costing formula is changed, the change is required to be applied: a. prospectively and the adjustment taken through the current profit or loss; b. retrospectively and the adjustment recognised as an extraordinary gain or loss c. prospectively and the current period adjustment recognised directly in equity; d. retrospectively and the adjustment taken through the opening balance of accumulated profits; ANS: D 55. The measurement rule for inventories, mandated by IAS 2 Inventories, is: a. lower of fair value and selling price; b. higher of completion costs and replacement costs. c. higher of initial cost and realisable value; d. lower of cost and net realisable value; ANS: D 56. ‘Net realisable value’ of inventory is defined as the net amount that an enterprise expects to realise from the sale of the inventory: a. plus the estimated costs of completion b. plus the estimated costs of completion plus the estimated costs necessary to make the sale; c. in a forced sale; d. in the ordinary course of operations less estimated costs of completion and costs necessary to make the sale; ANS: D 57. Net realisable value of inventories may fall below cost for a number of reasons including: I. Product obsolescence. II. Physical deterioration of inventories. III. An increase in the expected replacement costs of the inventory, IV. An increase in the estimated costs of completion. a. I, II and IV only; c. I, III and IV only; b. II, III and IV only d. I and II only. ANS: A 58. When determining the net realisable value of inventory, estimates must be made of the following: I. II. III. IV. a. b.

Estimated costs of completion. Expected replacement cost. Expected selling price. Estimated selling price. I, II, III and IV; II and IV only;

c. d.

I, II and III only; I, III and IV only.

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ANS: D 59. IAS 2 Inventories requires that when inventories are written down to net realisable value, they are written-down: a. on a class-by-class basis; c. according to geographical segment within the entity. b. on an item-by-item basis; d. on the basis of industry segment; ANS: B 60. If the selling price of inventory that has been written down to net realisable value in a prior period, subsequently recovers, the: a. previous amount of the write-down can be reversed; b. value adjustment can be recognised immediately in equity; c. carrying amount of the inventory cannot be adjusted; d. adjustment must be recognised in a ‘provision for future inventory write-downs’ account. ANS: A 61. Where the net realisable value of inventory falls below cost, IAS 2 Inventories, requires that: a. the difference be added to the carrying amount of the inventory. b. no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements; c. the inventory continue to be carried in the balance sheet at cost; d. the inventory be written down to net realisable value; ANS: D 62. When an entity allocates depreciation to the separate parts of an asset and each part is accounted for separately, the entity is using which of the following approaches to depreciation? a. periodic depreciation; c. segment depreciation b. replacement cost depreciation; d. components depreciation ANS: D 63. When a balance is carried in an ‘asset revaluation surplus’ account in relation to an asset that has been derecognised, it is acceptable under IAS 16 Property, Plant and Equipment, to: a. transfer the balance to a provision account for future asset revaluations. b. recognise the balance in profit or loss of the period in which the asset was derecognised; c. transfer the balance to retained earnings; d. transfer the balance to ‘share capital’ account; ANS: C 64. If a reporting entity chooses to switch from the cost model to the revaluation model for property, plant and equipment, the periodic depreciation charge will: a. increase; c. no longer be required. b. not be affected; d. decrease; ANS: A 65. In relation to the amortisation of intangible assets, if an intangible asset has a finite useful life: a. it must be amortised over a period not exceeding 40 years; b. it must be amortised over that life. c. it must be amortised across a period not exceeding 5 years; d. it is not subject to an annual amortisation charge; ANS: B 66. In relation to the amortisation of intangible assets, the general rule in IAS 38 Intangibles, is that unless demonstrated otherwise: a. the residual value is presumed to be zero b. all intangible assets have a residual value at least equal to the amount of maintenance costs incurred; c. the residual need no be reviewed at the end of each annual reporting period; d. the residual value does not enter into the determination of the amortisation charge; ANS: A 67. In relation to amortisation of intangible assets, IAS 38 Intangibles, requires that intangible assets with indefinite useful lives: a. should not be amortised in a period in which maintenance of the asset occurs. b. are not subject to an amortisation charge; c. must be amortised across a period of no more than 20 years; d. are amortised by the straight-line method across their useful lives; ANS: B 68. IAS 38 Intangibles, requires that the following items in relation to intangibles, each be disclosed separately: a. all amounts of intangibles acquired during the period. b. any impairment losses reversed in profit or loss during the period; c. the closing balance of each intangible; d. the opening balance of each intangible; ANS: B 69. When an intangible asset is acquired by an exchange of assets, which of the following measures will need to be considered in the determination of that cost? The: a. Fair value of the asset given up; c. replacement cost of the asset received b. carrying amount of the asset received; d. initial cost of the asset given up;

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ANS: A 70. Internally generated goodwill is prohibited from recognition in the financial statements of an entity. The reason for this treatment is that: a. goodwill is not identifiable; b. it is not comparable to any other intangible assets; c. it is not prudent to recognise intangible assets. d. goodwill is not measurable; ANS: A 71. According to the definition provided in IAS 38 Intangibles, activities undertaken in the ‘research’ phase of the generation of an asset may include: a. original and planned investigation with the prospect of gaining new scientific knowledge; b. using knowledge to materially improve a manufacturing device c. the use of research findings to create a substantially improved product; d. the application of knowledge to a design for the production of new materials; ANS: A 72. According to IAS 38 Intangibles, in order to be able to capitalise ‘development’ outlays an entity must be able to demonstrate the following: I. Technical feasibility and intention of completing the asset so it will be available for use or sale. II. Its ability to reliably measure the expenditure on the development of the asset. III. Ability to use or sell the asset. IV. How the asset will generate probable future economic benefits. a. I, II and IV only; c. II, and IV only; b. I, II, III and IV; d. II, III and IV only. ANS: B 73. When an internally generated asset meets the recognition criteria, the appropriate treatment for costs previously expensed is: a. no adjustment as these amounts may not be reinstated; b. capitalise into the cost of the asset and adjust the opening balance of retained earnings. c. include in the cost of the development of the asset; d. reinstatement; ANS: A 74. Paragraph 63 of IAS 38 Intangibles, prohibits the recognition of the following internally generated identifiable intangibles: I II III IV Brands No No No Yes Mastheads No Yes Yes Yes Publishing titles No No Yes Yes Customer lists No Yes No Yes a. I; c. III; b. IV. d. II; ANS: A 75. When determining the fair values to be used in accounting for a business combination, IFRS 3 Business Combinations, allows an acquirer how much time from the acquisition date in this process? a. 1 month; c. 3 months; b. 12 months; d. 2 years. ANS: B 76. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, is not applicable to the following assets: a. property; c. plant and equipment. b. land and buildings; d. financial assets that are already carried at fair value; ANS: D 77. The key characteristic for the classification of an asset as ‘held for sale’ is that the carrying amount of the asset must: a. principally be recovered through a sale transaction; b. be lower than initial cost of the asset; c. be higher than its net realisable value. d. principally be recovered through continuing use; ANS: A 78. The following criteria are used to determine whether an asset should be categorised as ‘held for sale’ I. The asset should be available for immediate sale. II. The asset should be available for sale at a future date yet to be determined. III. The sale of the asset should be highly probable. IV. The sale of the asset is a possibility. V. There should be an active program to locate a buyer. VI. There need not be an active marketing program for the asset.

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79.

80.

81.

82.

83.

84.

85.

86.

87.

a. I and III only; c. I, III and V only; b. II, IV and VI only; d. IV and VI only. ANS: C Where assets are removed from the classification of ‘held for sale’, IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, requires disclosure of the effects of the decision on the results of operations for the period, in the: a. notes. c. statement of changes in equity; b. cash flow statement; d. income statement; ANS: A In relation to assets that have been sold during the reporting period, IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, requires disclosure of the following items: I. A description of the non-current asset or disposal group. II. The gain or loss recognised in profit or loss. III. A description of the facts or circumstances of the sale. IV. The segment in which the non-current asset is reported. a. I, II, III and IV; c. I, II and IV only. b. II, and IV only; d. I, III and IV only; ANS: A Under IAS 36 Impairment of Assets, the following assets are subject to impairment testing: I II III IV Inventory Yes Yes No No Assets arising from construction contracts Yes Yes No No Assets arising from employee benefits No Yes No Yes Property, plant and equipment No Yes Yes No a. I; c. II; b. III; d. IV. ANS: A Where assets are removed from the classification of ‘held for sale’, IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, requires disclosure of the effects of the decision on the results of operations for the period, in the: a. Notes. c. statement of changes in equity; b. cash flow statement; d. income statement; ANS: A When assessing the recoverable of assets that have previously been subject to an impairment loss, all of the following indicators assist in providing external evidence that an impairment loss has reversed: a. internal reporting sources indicate that the economic performance of the asset will not be as good as expected. b. market interest rates have decreased during the period c. significant changes with an adverse effect on the entity have taken place; d. the asset’s market value has decreased significantly during the period ANS: B When an impairment loss in relation to a cash-generating unit is reversed, it is allocated on a pro rate basis to the assets of the unit, except for: a. land; c. plant; b. equipment. d. goodwill; ANS: D During 20X4 Sacco Limited, estimated that the carrying amount of goodwill was impaired and wrote it down by $50 000. In a subsequent year, the company reassessed goodwill was decided that the old acquired goodwill still existed. The appropriate accounting treatment in the subsequent period is: a. increase goodwill by an adjustment to retained earnings. b. ignore the reversal as it is prohibited by IAS 36 Impairment of Assets; c. reverse the previous goodwill impairment loss; d. recognise the revalued amount of goodwill by an adjustment against the asset revaluation surplus account; ANS: B According to IAS 17 Leases, because lease payments are made over the lease term, the payments must be divided into the following components: I II III IV  Reduction of the lease liability Yes Yes No Yes  Interest expense incurred Yes No Yes No  Reimbursement of lessor costs Yes Yes Yes No  Receipt of lease incentives No No Yes Yes a. I; c. II; b. III; d. IV. ANS: A In relation to finance leases, the following information must be disclosed separately in the financial statements of lessors: I. Unearned finance income. II. Contingent rents recognised as income in the period. III. The unguaranteed residual values accruing to the benefit of the lessee. IV. The accumulated allowance for uncollectible minimum lease payments receivable.

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a. I, II and IV only c. I, III and IV only b. II, III and IV only; d. II and IV only ANS: A 88. When substantially all of the risks and rewards incident to ownership remain with the lessor, the arrangement is treated as: a. an operating lease; c. a finance lease; b. a sale and leaseback; d. a non-lease, rental arrangement. ANS: A 89. Under IAS 17 Leases, lessors are required to account for lease receipts from operating leases as: a. revenue, on a reducing balance basis over the lease term; b. income, on inception date of the lease; c. income, on a straight-line basis over the lease term; d. revenue, at the end of the lease term. ANS: C 90. In respect to non-cancellable operating leases, lessees are required under IAS 17 Leases, to disclose the total of future minimum lease payments for each of the following periods: a. not later than one year. b. not later than 3 months; c. later then 6 months and not later than 9 months; d. later than 3 months and not later then 6 months; ANS: A 91. With respect to operating leases, lessors are required under IAS 17 Leases, to make the following disclosures: I. Total contingent rents recognised as income in the period. II. Future minimum lease payments under individual, cancellable operating leases, separately. III. A general description of the lessee’s leasing arrangements. IV. Future minimum lease payments under non-cancellable operating leases in aggregate. a. I, II and III only; c. I, III and IV only b. II and III only; d. I, II and IV only. ANS: C 92. A lessee when accounting for a lease incentive received under an operating lease treats is as a:n a. increase in rental income over the lease term; b. increase in rental expense over the lease term; c. reduction in rental expense over the lease term; d. reduction in rental income over the lease term; ANS: C 93. A lease transaction that involves the sale of an asset that is then leased back to the seller for all or part of its remaining economic life is known as: a. a sale and leaseback c. a novated lease; b. an operating lease d. a leveraged lease ANS: A 94. If a sale and leaseback transaction results in a finance lease, IAS 17 Leases, provides the following accounting treatment for any excess of sales proceeds over the carrying amount: a. recognise directly in retained earnings of the seller-lessee b. immediately recognise as income by the seller-lessee; c. defer and amortise over the lease term; d. include in the capitalised amount of the leased asset. ANS: C 95. If an item of income is not material, then the manner of presenting that information, or whether or not it is disclosed: a. will have an impact on the economic decisions of users; b. should not affect the economic decisions of users c. should not be included in the determination of profit or loss for the period d. will be included directly in retained earnings ANS: B 96. The level of rounding used in the financial statements refers to: a. the presentation of a concise financial report rather than a full financial report. b. the shortening of the notes by removing comparative numbers; c. the abbreviation of words used d. the truncation of the amounts presented; ANS: D 97. IAS 1 Presentation of Financial Statements, requires that an entity must disclose the following information in its financial statements: I II III IV  A description of the entity’s operations No Yes No Yes  The legal form of the entity No Yes Yes Yes  The name of the entity’s ultimate parent No Yes No No  The address of the registered office No Yes Yes Yes a. I; c. II; b. III; d. IV.

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ANS: C 98. An accounting policy: a. comprises the principles applied in preparing the financial statements; b. is a judgment applied in deciding whether to recognise a transaction; c. is the application of judgment in deciding on the measurement of an item; d. is the judgement used in deciding on whether to disclose a particular item. ANS: A 99. Where a material error occurs in the recording process, an adjustment: a. must be made to the prior period comparative balances; b. may be recognised directly in retained earnings; c. may be deferred and recognised in a later accounting period; d. is not necessary, but the item must be fully explained in the notes to the financial statements. ANS: A 100. The balance sheet of a reporting entity presents a structured summary of the: a. revenue and expenses arising during the reporting period; b. assets, liabilities and equity at reporting date; c. profits and losses not reported in income of the period; d. receipts and payments of cash during the period. ANS: B 101. The profit or loss of a period and the other gains and losses recognised directly in equity are presented in the: a. balance sheet; c. income statement; b. cash flow statement; d. statement of changes in equity. ANS: D 102. The profit or loss attributable to a minority interest is required, under IAS 1 Presentation of Financial Statements, to be presented on the face of the: a. Cash flow statement; c. balance sheet; b. income statement; d. statement of changes in equity. ANS: B 103. The following is no longer an allowable line item for presentation on the face of an income statement: a. extraordinary items; c. finance costs; b. tax expense. d. pre-tax loss attributable to discontinuing operations; ANS: A 104. Which of the following classifications has been eliminated for the purposes of presenting information on an income statement? a. revenue; c. abnormal items; b. cost of sales; d. other income. ANS: C 105. If the classification of expenses by function method is used for the presentation of an income statement, additional information on the following items must be disclosed: a. revenue; c. gains on disposal of assets; b. depreciation and amortisation expense. d. gains on revaluation of assets; ANS: B 106. In relation to ‘Retained earnings’, IAS 1 Presentation of Financial Statements, 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; c. II, III and IV only; b. I, III and IV only; d. III and IV only. ANS: B 107. Exchange difference relating to the translation of foreign operations into the currency of the reporting entity, are disclosed in the: a. income statement; c. statement of changes in equity. b. Cash flow statement; d. balance sheet; ANS: C 108. IAS 1 Presentation of Financial Statements requires disclosure in the balance sheet of the following items: a. a statement of compliance with IFRS b. the measurement basis used for the revaluation of assets c. information about the key assumptions used in the depreciation of assets d. the carrying amount of property, plant and equipment; ANS: D 109. The summary of accounting policies is normally presented: a. before all of the financial statements in a financial report; b. as the first note, after all the financial statements; c. as the last note in a set of financial statements d. within the auditor’s report.

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ANS: B 110. IAS 1 Presentation of Financial Statements, requires the following note disclosures in relation to dividends of an entity. The: a. Amount of any cumulative preference dividends not recognised; b. names of the recipients of the dividends; c. addresses of all shareholders who are entitled to receive the dividends d. a schedule of cumulative dividends paid in prior periods. ANS: A 111. The following cash flow activities are regarded as investing cash flows: a. income taxes paid; c. interest paid; b. proceeds from issue of debentures. d. acquisition of subsidiary net of cash acquired; ANS: D 112. When presenting the proceeds from the acquisition and disposal of subsidiaries, IAS 7 Cash Flow Statements, requires that the aggregate cash flows: a. should be presented as operating activities; b. should be included amongst financing activities; c. should be presented separately d. may be set off for presentation purposes. ANS: C 113. In respect to both acquisitions and disposals of investments in subsidiaries, IAS 7 Cash Flow Statements, requires that an entity should disclose, in aggregate, the following: I. The total purchase or disposal consideration. II. The portion of the consideration discharged by cash or cash equivalents. III. The amount of cash and cash equivalents in the subsidiary acquired or disposed of. IV. The amount of the non-cash assets and liabilities acquired or disposed of. a. I, II, III and IV; c. I, II, and III only; b. I, II and IV only; d. II and III only. ANS: A 114. Which of the following items would be presented in a cash flow statement? a. payment of dividends through a share investment scheme; b. proceeds from the issue of debentures; c. refinancing of long-term debt. d. acquisition of an investment in a subsidiary for consideration consisting of an exchange of non-current assets and liabilities; ANS: A 115. The following item would not appear in a cash flow statement: a. receipts of cash from customers; c. payment of creditors; b. conversion of preference shares to d. proceeds on disposal of non-current ordinary shares; assets. ANS: B 116. IAS 7 Cash Flow Statements, requires that investing and financing transactions that do not require the use of cash or cash equivalents should be: a. excluded from a cash flow statement; b. included in a cash flow statement before operating, investing and financing activities; c. presented in the cash flow statement after operating activities and before investing and financing activities; d. presented in a cash flow statement after the operating, investing and financing activities have been presented. ANS: A 117. In a consolidated group of entities, control over the subsidiaries in the group: a. may not be shared control c. can be shared with other parties; b. can be less than 100% control; d. can be less than 50% control. ANS:A 118. The IASB Framework identifies seven user groups that are considered to be important in determining the existence of a reporting entity. These users groups include all of the following except: a. investors; c. preparers; b. lenders; d. suppliers and other trade creditors. ANS: C 119. All parent entities are required to present consolidation statements unless the following conditions apply to them: I. The parent is a wholly owned subsidiary. II. The parent is a partly owned subsidiary and its owners do not object to the non-presentation of consolidated financial statements. III. The parent’s debt or equity securities are traded in a public market. IV. The parent is not in the process of applying to issue any securities in a public market. a. b.

I and II only; I, II and IV only;

c. I, II and III only; d. I, II, III and IV.

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ANS: B 120. As required by IAS 27 Consolidated and Separate Financial Statements, where there are transactions between members of the group, the effects of these transactions are: a. adjusted partially in direct proportion to the level of control held by the parent; b. adjusted in full on consolidation; c. not adjusted in the consolidation process. d. adjusted in proportion to the equity held by the minority interests in the subsidiary; ANS: B 121. Under the parent entity concept of consolidation, the minority interest in the subsidiary is: a. reported in the asset section of a balance sheet b. reported in the equity section of a balance sheet c. reported in the notes to the financial statements and not in the balance sheet d. reported in the liability section of a balance sheet. ANS: D 122. The focus of the parent entity concept of consolidation is on the: a. minority interests in subsidiaries within the group as the primary users; b. equity holders of all entities within the group; c. parent’s equity holders as the prime user group; d. subsidiary’s equity holders as the prime user group. ANS: C 123. The consolidation concept that results in a group consisting of the assets and liabilities of the parent and the parent’s proportional share of the assets and liabilities of the subsidiary, is known as the: a. proprietary concept; c. comprehensive concept; b. entity concept; d. concise concept; ANS: A 124. The concept of consolidation that requires pro rata consolidation of subsidiaries is known as the: a. entity concept; c. proprietary concept; b. parent concept; d. subsidiary concept. ANS: C 125. If an investor entity owns more than half of the voting or potential voting power of an investee and does not account for the investment as a subsidiary, IAS 27 Consolidated and Separate Financial Statements, requires that the following disclosure be made: a. the reasons why the ownership of the investee does not constitute control; b. the nature of the relationship between the investor and investee; c. the nature of any restriction on the ability of the investor to transfer funds to the investee; d. the amount of any repayments of borrowings between the investor and investee during the period ANS: A 126. If a parent entity chooses not to prepare consolidated financial statements, IAS 27 Consolidated and Separate Financial Statements, requires the following disclosures in the separate financial statements of the parent: I. The name, country of residence and voting power of the directors of the parent. II. That the exemption from consolidation has been used. III. A list of significant investments including the proportion of ownership. IV. A description of the method used to account for the investments. a. I, II and IV only; c. II, III and IV only; b. II and III only; d. IV only. ANS: C 127. According to IAS 27 Consolidated and Separate Financial Statements, parent entities are required to disclose: I. The fact that the statements are separate financial statements II. A list of significant investments in subsidiaries. III. If the subsidiary is not wholly owned, the names of all other members. IV. The country of incorporation of subsidiaries. a. I, II and IV only; c. II, III and IV only; b. I and IV only; d. I, II, III and IV. ANS: A 128. In relation to pre-acquisition of a subsidiary entity, which of the following events can cause a change in the preacquisition entry subsequent to acquisition date? I. Transfers from post-acquisition retained earnings. II. Dividends paid from pre-acquisition reserves. III. Transfers from pre-acquisition retained earnings. IV. Impairment of goodwill. a. I, II, III and IV; c. I, III and IV only; b. II, III and IV only. d. II and III only; ANS: B 129. When a dividend is paid by a wholly owned subsidiary out of pre-acquisition equity, the parent entity recognises: a. a reduction in the investment in the subsidiary; b. an increase in dividend income; c. a decrease in share capital; d. a decrease in dividend revenue. ANS: A

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130. When a parent recognises a pre-acquisition dividend that is declared by a wholly owned subsidiary it makes the following entry in its accounting records: a. DR Dividend receivable c. DR Dividend income CR Dividend income; CR Dividend receivable; b. DR Dividend receivable d. DR Shares in subsidiary CR Shares in subsidiary; CR Dividend income. ANS: B 131. For entities wanting to use the cost model of accounting, the revaluation of a subsidiary’s assets would be undertaken in the: a. subsidiary’s records; c. parent entity’s records; b. consolidation worksheet; d. notes to the consolidated financial statements. ANS: B 132. In a business combination the revaluation of non-current assets in the records of the subsidiary, means that the subsidiary has effectively adopted the: a. parent-entity model of consolidation; c. proprietary model of accounting; b. Cost model of accounting; d. revaluation model of accounting. ANS: D 133. A reverse acquisition occurs where a: a. subsidiary entity is controlled by a legal parent entity; b. subsidiary entity has control over a legal parent entity; c. parent entity controls a subsidiary through an ownership interest in another subsidiary d. parent entity has indirect control over the subsidiary. ANS: B 134. Janus Limited, a subsidiary entity, sold a non-current asset at a profit to it parent entity. The adjustment necessary on consolidation to reflect the tax effect of this transaction, is: a. increase deferred tax assets; c. decrease deferred tax liabilities; b. increase retained earnings; d. decrease retained earnings. ANS: A 135. If a dividend is paid out of profit that are earned after the acquisition date, it is known as: a. a final dividend; c. a temporary dividend; b. a post acquisition dividend; d. a pre acquisition dividend. ANS: B 136. A consolidation adjustment to deal with the management fees charged by a parent entity to a subsidiary entity has the following tax effect: a. increases deferred tax liabilities; c. increases deferred tax assets; b. decreases deferred tax assets; d. no tax effect. ANS: D 137. Ownership interests in a subsidiary entity that do not belong to the parent entity are known as: a. unowned interests; c. minority interests; b. proprietary interests; d. pro rata ownership rights. ANS: C 138. A minority interest in a group of entities, contributes which of the following to the group? a. debt funds; c. assets; b. revenue; d. equity. ANS: D 139. In a consolidated balance sheet, the minority interest is shown: a. separately within the non-current liabilities; b. separately within the equity section; c. separately within the non-current investments; d. as part of the total current liabilities of the group ANS: B 140. The IAS Framework, identifies the minority interest in a group as an element of: a. equity; c. liabilities; b. assets; d. revenue. ANS: A 141. When preparing a consolidated income statement, IAS 1 Presentation of Financial Statements, requires that any minority interest in: a. revenue is shown separately; c. profit or loss is shown separately; b. expenses is shown separately; d. in income tax expense is shown separately. ANS: C 142. When preparing a consolidated statement of changes in equity, IAS 27 Consolidated and Separate Financial Statements, requires that any minority interest in equity of subsidiaries is: a. shown as a one-line item; b. shown as a share of total ending equity of the subsidiary only; c. disclosed in the balance sheet, and not in the statement of changes in equity; d. shown on a line-by-line basis. ANS: D

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143. When a revaluation of a subsidiaries assets, up to fair value, is undertaken on a consolidation worksheet, the tax effect that must also be adjusted on the worksheet is: a. increase deferred tax liability; c. decrease deferred tax liability; b. increase deferred tax asset; d. decrease deferred tax asset. ANS: A 144. An excess will arise in an acquisition if: a. the parent entity pays less than fair value for the identifiable asset, liabilities and contingent liabilities acquired; b. the parent entity pays more than fair value for the identifiable assets, liabilities and contingent liabilities of the business acquired; c. the subsidiary sells its identifiable assets, liabilities and contingent liabilities for more than fair value; d. the subsidiary sells its identifiable assets, liabilities and contingent liabilities at a price that is higher than fair value. ANS: A 145. Under the entity concept of consolidation, a minority interest is entitled to a share of which of the following items? I. Equity of the group entity at acquisition date. II. Current period profit or loss of the subsidiary entity. III. Changes in equity of the subsidiary since acquisition date and the beginning of the financial period. IV. Equity of the subsidiary at acquisition date. a. I, II and III; c. I and II only; b. II, III and IV only; d. III only. ANS: B 146. In a situation where a parent acquires shares in a subsidiary, and the subsidiary later acquires a controlling interest in another entity, the ownership structure is: a. sequential; c. non-sequential; b. ordered; d. random. ANS: A 147. Omega Limited acquired a controlling interest in shares in Diamond Limited. At the time of this acquisition Diamond Limited already held shares in Oscar Limited. This form of acquisition of an indirect acquisition by Omega Limited in Oscar Limited is known as: a. an indirect acquisition; c. a reciprocal shareholding b. a cross-holding; d. a non-sequential acquisition. ANS: D 148. The indirect minority interest, in a group that has a multiple subsidiary structure, is entitled to a proportionate share of: a. a proportionate share of post-acquisition equity only; b. a proportionate share of pre-acquisition equity only; c. No share of post acquisition equity; d. No share of either pre acquisition or post acquisition equity. ANS: A 149. When calculating the direct minority interest share of equity, consolidation adjustments are needed to: a. remove unrealised profits or losses from intragroup transactions; b. recognise profits made on intragroup services; c. eliminate intragroup advances d. partially eliminate profits on intragroup services. ANS: A 150. Mutual shareholdings exist when: a. a parent owns shares in a subsidiary; b. a subsidiary owns shares in a parent only; c. a parent owns shares in a subsidiary and in a joint venture; d. a parent and a subsidiary own shares in each other. ANS: D 151. The accounting method applied to investments in associates, known as the equity method, is also known as the: a. entity method of consolidation; c. proprietary method of consolidation; b. multiple line consolidation method; d. one-line consolidation method. ANS: D 152. For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds: a. between 1% and 5% of the voting power of the investee; b. between 5% and 10% of the voting power of the investee. c. 20% or more of the voting power of the investee; d. 50% or more of the voting power of the investee; ANS: C 153. Organisation to which IAS 28 Investments in Associates, applies include: a. unincorporated entities; c. venture capital organisations; b. mutual funds; d. unit trusts. ANS: A

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154. Where non-current assets are held for resale are required to be measured using: a. the equity method; c. the lower of cost or market value; b. fair value. d. the lower of carrying amounts and fair values less costs to sell; ANS: D 155. When goodwill is acquired by an investor in an associate, the amortisation of goodwill is:. a. spread evenly across the useful life of the investment; b. included in the determination of the investor’s share of the associate’s profit or loss; c. not permitted; d. included in the revaluation of the investment ANS: C 156. Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of an associate are: a. recognised in the books of the investor; b. recognised in the books of the investee; c. notional adjustments and not included in the books of the investee; d. relate to realised transactions and so are recognised directly by the investee ANS: C 157. When disclosing information about investments in associates, IAS 28 Investments in Associates, requires separate disclosure of which of the following? I. Shares in associates, in the balance sheet. II. Share of profit or loss of associates, in the income statement. III. Share of any discontinuing operations, in the Statement of changes in equity. IV. Shares of changes recognised directly in the associate’s equity, in the Statement of changes in equity. a. I, II, III and IV; c. I, II and IV only; b. II, II and IV only; d. I, II and III only. ANS: A 158. The particular relationship between parties that signifies the existence of a joint venture is: a. significant influence by one party over the other party; b. control over the operating policies of one party by another party; c. shared influence by two parties over the activities of another party; d. joint control by the parties over the activities of an operation. ANS: D 159. A relationship that is characterised by the existence of a capacity to share control over an economic entity is known as: a. a parent-subsidiary relationship; c. a joint venture; b. an investor-associate relationship; d. a sole proprietorship. ANS: C 160. IAS 31 Interests in Joint Ventures, provides that joint control exists where: a. no single venturer is in a position to control the activity unilaterally; b. the decisions in areas essential to the goals of the joint venture do not require the consent of the venturers; c. no one party may be appointed as the manager of the joint venture; d. one party alone has power to control the strategic operating decisions of the joint venture. ANS: A 161. In relation to the supply of a service to a joint venture by one of the venturers, which of the following statements is correct? a. a venturer can recognise 100% of the earned through the supply of services to the joint venture; b. a venturer is entitled to recognise a profit from the supply of services to itself; c. a venturer cannot earn a profit on supplying services to itself; d. a venturer is not able to recognise the service revenue or service cost for the services supplied to the joint venture. ANS: C 162. Under IAS 14 Segment Reporting, where a segment is not primarily of a financial nature, segment revenue will include: a. interest income; c. dividend income; b. gain on sale of investments; d. an entity’s share of profit of associates ANS: D 163. Under IAS 14 Segment Reporting, segment expense include:. a. a joint venturer’s share of the expenses of a jointly controlled entity that is accounted for by a proportionate consolidation b. income tax expense; c. interest, unless the segment’s operations are primarily of a financial nature d. general administrative expenses that relate to the entity as a whole ANS: A

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164. Under IAS 14 Segment Reporting, segment result is described as: a. Total segment income; c. segment revenue less segment expense; b. segment profit after any adjustments for d. segment profit after any adjustments for minority interests; income tax. ANS: C 165. According to IAS 14 Segment Reporting, segment assets do not include: a. income tax assets; b. a joint venturer’s share of the operating assets of a jointly controlled entity that is accounted for by proportionate consolidation; c. investments accounted for under the equity method where the profit or loss from such investments is included in segment revenue; d. operating assets employed by a segment in its operating activities that can be allocated to the segment on a reasonable basis. ANS: A 166. According to IAS 14 Segment Reporting, segment liabilities exclude: a. liabilities that result from the operating activities of a segment that are directly attributable to a segment; b. interest bearing liabilities if the segment result excludes interest expense c. income tax liabilities; d. a joint venturer’s share of the liabilities of a jointly controlled entity that is accounted for by proportionate consolidation. ANS: C 167. Under IAS 14 Segment Reporting, a segment is reportable if a majority of its sales are to external customers and its: a. revenue from external customers is 10% or more of total revenue; b. result is 5% or more of the combined result of all segments; c. liabilities are 5% or more of total liabilities; d. assets are 5% or more of total assets. ANS: A 168. According to IAS 14 Segment Reporting, if an entity has two segments and the primary segment is a geographic segment, then the secondary segment will be: a. a business segment c. an economic segment; b. a financial segment. d. a organisational segment; ANS: A 169. Under IAS 14 Segment Reporting, separate segments of an entity must be identified as reportable segments until at least: a. 100% of total entity result is included; b. 75% of total entity revenue is included; c. 80% of total entity liabilities are included; d. 70% of total entity assets are included. ANS: A 170. When an entity’s primary segment format is geographical segments, in relation the segment result, it is required to make the following disclosures: a. segment result by location of assets; b. segment result by location of business segment; c. segment result by location of customers; d. segment result after tax. ANS: A 171. If an entity’s primary segment format is geographical segments by location of customers, under IAS 14 Segment Reporting, it is required to make the following disclosures: a. depreciation and amortisation by location of assets; b. depreciation and amortisation by location of liabilities; c. depreciation and amortisation by business segment; d. depreciation and amortisation expense, by location of customers. ANS: D -end-

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