Deck 12: Disclosure: Legal Requirements and Accounting Polices

Question 1

Half yearly reports are required to be prepared by:

A)entities where more than 5% of shareholders request such reports
B)disclosing entities
C)large proprietary companies
D)public companies

Answer 1

B

Question 2

In Australia an entity that has users who are not in a position to demand reports tailored to their particular information needs must prepare;

A)management accounts only;
B)short-form financial statements only;
C)specific purpose financial statements;
D)general purpose financial statements.

Answer 2

D

Question 3

In accordance with the quantitative guidelines in AASB 1031 Materiality,to determine if the omission of an item of Equipment worth $600 000 is material,it should be compared with the more appropriate base amount of:

A)Total Non-Current Assets;
B)Equity;
C)Total Assets;
D)Plant and Equipment.

Answer 3

D

Question 4

To meet the stated objective of general purpose financial reporting,a set of financial statements must contain information about an entity's:

I II III IV
Assets and liabilities Yes Yes Yes Yes
Income and expenses Yes Yes Yes No
Equity & changes in equity Yes Yes No No
Cash flows No Yes No Yes

A)I;
B)II;
C)III;
D)IV.

Question 5

Where a fundamental error occurs in the recognition process:

A)it is not necessary to restate the prior period comparatives;
B)the error may be amended prospectively;
C)it may be deferred an recognised in the subsequent period;
D)a retrospective correction must be made.

Question 6

When assessing the materiality of a bad debtor,the accountant of Azad Limited concluded that in conformity with guidelines provided in AASB 1031 Materiality,it was not likely to be material as it:

A)was more than 12% but less than 20% of total equity
B)was more than 10% but did not exceed 50% of total bad debtors for the period;
C)was less than 5% of total bad debtors for the reporting period;
D)did not affect the cash flows for the period.

Question 7

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.

Question 8

The directors of the company are undecided as to whether they should amend the financial statements to provide for additional doubtful debts of $150 000 as at 30 June 20X7.In accordance with the quantitative guidelines in AASB 1031 Materiality,the additional doubtful debts of $150 000 would be material as it represents:

A)60% of total cash;
B)20% of total receivables;
C)4.6% of total current assets;
D)2.5% of total equity.

Question 9

A company's workforce went on strike for an indefinite period commencing on 5 August 20X1.The strike was expected to cause severe financial conditions for the company.The financial statements for the year ended 30 June 20X1 were expected to be completed by 7 August 20X1.In accordance with AASB 110 Events after the Reporting Date,the appropriate treatment regarding the strike is:

A)disclosure as a note to the financial statements,as it is a non-adjusting event;
B)disclosure as a note to the financial statements,as it is an adjusting event;
C)to adjust the financial statements,as it is a non-adjusting event;
D)to adjust the financial statements,as it is an adjusting event.

Question 10

A departure from Australian Accounting Standards may be allowed if two conditions are met.These are that management concludes that compliance would be so misleading that it would conflict with the objective of financial statements,and:

A)it will not result in a material impact on the profit or loss;
B)it is not prohibited by the relevant regulatory framework;
C)that all directors of the entity approve of the departure in writing;
D)that all creditors of the entity ratify the departure at the entity's next annual meeting.

Question 11

Which of the following does not require disclosure in an entity's accounting policy note?

A)the financial reporting framework applied in the preparation of the financial statements
B)the measurement bases used in the preparation of the financial statements
C)the fact that the entity has adopted the accruals basis of accounting
D)a description of the key accounting policies of the entity

Question 12

ABC Ltd has discovered that the useful life estimate it made on a material depreciable asset was incorrect.The correct treatment of this event is:

A)treat it as an error and adjust prospectively
B)treat it as an error and adjust retrospectively
C)treat it as a change in an accounting estimate and adjust prospectively
D)treat it as a change in an accounting estimate and adjust retrospectively

Question 13

The term 'true and fair override' is used to describe a situation where an entity has:

A)failed to provide a statement of comprehensive income with its set of financial statements;
B)not provided a set of general purpose financial statements within a year of providing the previous set;
C)failed to provide a directors' report with its annual general purpose financial statements.
D)not applied a particular Australian Accounting Standards on the grounds that to do so would be misleading.

Question 14

According to the Corporations Act if a company is a borrower,when its annual financial report goes to the members it must be accompanied by:

A)the directors' report only;
B)the auditor's report to the trustee for the debenture holders only;
C)the directors' report and the chief executive officer's report only;
D)the directors' report and the auditor's report to the trustee for the debenture holders only.

Question 15

The Corporations Act allows a company the right to prepare and send a concise report to members which consists of:
I)a financial report drawn up in accordance with accounting standards.
II)a directors' report for the year.
III)an auditor's statement.
IV)a statement that the report is a concise report and that the full financial report and auditor's report is available if requested.

A)I,II and III only;
B)II,III and IV only;
C)III and IV only;
D)I,II,III and IV.

Question 16

According to the Corporations Act a company is compelled to include the following financial statements in its annual financial report:
I statement of comprehensive income
II statement of profit and loss
III statement of financial position
IV statement of changes in equity
V statement of cash flows

A)I,II,III and IV
B)II,III,IV and V
C)I,II,III and V
D)I,III,IV and V

Question 17

Changes in errors are required to be applied:

A)prospectively
B)retrospectively
C)prospectively unless such application is impracticable
D)retrospectively unless such application is impracticable

Question 18

Prior to the finalisation of the financial statements for the year ended 30 June 20X2,a company experienced a number of material events,including:
I on 10 July 20X2,the directors decided to close a division of the company at an estimated cost of $1 000 000.
II on 10 August 20X2,a court decision found the company liable to pay damages of $500 000 to a major customer who had commenced legal action in April 20X0.
III an independent valuation of Property,conducted on 20 July 20X2 revealed that the directors' valuation included in the 30 June 20X2 financial statements was overstated by $700 000.
In respect of the events listed above,it will be necessary to adjust the financial statements,by way of general journal entries,for:

A)I,II and III;
B)II only,and make a note disclosure for I and III;
C)III only,and make a note disclosure for I and II;
D)II and III only,and make a note disclosure for I.

Question 19

Which of the following statements is correct?

A)If it is impracticable to prospectively restate the figures for the previous years due to changes in an accounting policy,then they must be restated retrospectively.
B)If it is impracticable to retrospectively restate the figures for the previous years due to correction of an error,then they must be restated prospectively.
C)If it is impracticable to retrospectively restate the figures for the previous years due to changes in an accounting estimate,then they must be restated prospectively.
D)If it is impracticable to retrospectively disclose a change in an accounting policy,then the disclosure must be restated prospectively.

Question 20

Which of the following requires disclosure in an entity's accounting policy note?

A)the fact that the entity is a going concern
B)the measurement bases used in the preparation of the financial statements
C)the fact that the entity has adopted the accruals basis of accounting
D)that the entity is a reporting entity

Question 21

Explain the meaning of the term 'true and fair override'.

Question 22

Explain why shareholders may prefer to use a concise financial report.

Question 23

What is comparative information and why must it be disclosed in financial statements?

Question 24

Distinguish between the concepts of a 'true and fair view' and 'present fairly'.

Question 25

Explain the implication for the future of an entity if its financial statements are not prepared on a going concern basis.