Deck 3: Company Operations

Question 1

According to AASB 111 Construction Contracts,revenue and expenses relating to long-term construction contracts are recognised on the basis of the:

A)effective interest method.
B)discounted cash flows method.
C)receipt of cash flows.
D)percentage of completion method.

Answer 1

D

Question 2

The AASB's Conceptual Framework defines income as:

A)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.
B)the gross inflow of economic benefits during the period arising in the course of ordinary activities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity participants.
C)income that arises in the ordinary course of business and is referred to by a variety of different names,including sales,fees,interest,dividends and royalties.
D)increases in economic benefits during the accounting period in the from of outflows or decreases in assets or increases in liabilities that result in increases in equity,other than those relating to contributions from equity participants.

Answer 2

A

Question 3

Income arises because of changes in:

A)revenues and expenses.
B)assets and liabilities.
C)assets and expenses.
D)equity and liabilities.

Answer 3

B

Question 4

In the context of liabilities,present obligations may be:

A)constructive.
B)
B)legal.
C)both a and
D)formative.

Question 5

In relation to a revaluation surplus,an entity:

A)cannot use this surplus for the payment of future dividends.
B)can transfer this surplus to retained earnings when the asset is derecognised or used.
C)cannot transfer this surplus to any other reserve account.
D)can transfer the surplus to the current period profit or loss when the asset is disposed of.

Question 6

AASB 137 defines a provision as a:

A)present obligation arising from past events,the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
B)liability of uncertain timing and amount.
C)possible obligation that arises from past events and whose existence will be confirmed only by the occurrence/non-occurrence of one or more uncertain events not wholly within the control of the entity.
D)present obligation that arises from a past event but is not recognised because the amount of the obligation cannot be measured with sufficient reliability.

Question 7

Which of the following categories of revenue is not included in AASB 118 Revenue?

A)Revenues from services rendered
B)Gains from asset revaluations
C)Royalties
D)Dividends

Question 8

Under the AASB's Conceptual Framework liabilities are defined as:

A)future economic benefits under the control of the entity.
B)future sacrifices of economic benefits that are contingent upon the occurrence of an unusual event.
C)future sacrifices of profits payable to owners in the form of dividends.
D)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.

Question 9

According to the Corporations Act,dividends may:

A)only be paid to shareholders once a year.
B)only be paid out of the current year's profits of a company.
C)be declared and paid to shareholders irrespective of whether a company has accumulated losses.
D)be paid if the company has an excess of assets over liabilities.

Question 10

According to the AASB's Conceptual Framework an asset is defined as a/an:

A)contingent item depending on another event occurs at some time in the future.
B)resource controlled by the entity as a result of future events and from which future economic benefits are expected to flow to the entity.
C)resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
D)item that has a physical existence and can be converted into cash within the next accounting period.

Question 11

Which of the following statements is not correct in relation to cumulative preference shares?

A)Holders of cumulative preference shares are guaranteed a dividend every year.
B)Undeclared cumulative preference share dividends accumulate,or carry forward,to future periods.
C)The accumulated amount of any cumulative preference share dividend plus the current year's preference dividend must be paid before any dividend can be paid to ordinary shareholders.
D)Cumulative preference share dividends that are not declared in the year they are due are called dividends in arrears.

Question 12

In relation to the measurement of an asset,the amount of consideration given to acquire the asset at its acquisition date is known as its:

A)historical cost.
B)current cost.
C)realisable value.
D)present value.

Question 13

As well as expenses that arise in the ordinary activities of a business,which of the following is recognised as an expense of a company?

A)Losses
B)Dividends
C)Gains
D)Transfers out of retained earnings

Question 14

Information has the quality of reliability when it:

A)cannot be relied on by financial statement errors.
B)is relevant to decisions being made by users.
C)contains many material errors.
D)is free from material error.

Question 15

AASB 101 requires which of the following in relation to the classification of expenses?

A)Expenses to be classified by either nature or function.
B)Expenses to be classified by nature,unless classification by function is more relevant.
C)Expenses to be classified by function,unless classification by nature is more relevant.
D)Expenses to be classified by both nature and function.

Question 16

Which of the following statements is correct in relation to the payment of dividends?

A)Dividends can only be paid if a company has generated a profit in the current period.
B)The payment of dividends is regulated by the Corporations Act.
C)A company can only pay an interim dividend if its constitution allows it.
D)Preference dividends must be paid on a cumulative basis.

Question 17

A company incurs significant costs in relation to a speculative mining project that intends to turn rocks into gold.In accordance with the AASB's Conceptual Framework,the costs of this project would be an:

A)expense because there is little probability that future economic benefits will eventuate.
B)expense because the recognition criteria for an asset is not satisfied.
C)asset because the definition and recognition criteria for assets are satisfied.
D)asset because the company will control the future economic benefits.

Question 18

Which of the following statements is correct in relation to the recognition of expenses?

A)Under the Conceptual Framework,the recognition of expenses is based on the matching process.
B)The recognition of expenses is not subject to the same degree of regulation as revenue.
C)Under the Conceptual Framework,recognition of expenses is not tied to the matching process.
D)Individual accounting standards do not need to be consulted to determine the appropriate treatment for particular types of expenses.

Question 19

Dividends declared after the reporting period:

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 AASB 132 recognition criteria for liabilities.

Question 20

According to AASB 101,an entity will classify a liability as current when:

A)it expects to settle the liability outside its normal operating cycle.
B)it expects to settle the liability within its normal operating cycle.
C)the entity has an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.
D)the liability is due to be settled more than 12 months after the reporting date.

Question 21

The statement of financial position shows which of the following?
I)Expenses
II)Revenues
III)Equity
IV)Assets
V)Liabilities

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

Question 22

When changing an accounting policy,AASB 108 requires which of the following to be applied retrospectively?

A)A voluntary change to improve the relevance of information presented.
B)A change due to the adoption of a new accounting standard.
C)A change due to the adoption of a new interpretation.
D)All of the options are correct.

Question 23

Items which have only sentimental or spiritual benefits are not assets for accounting purposes.

Question 24

When making a transfer from a general reserve to retained earnings,which of the following journals could be used?

A)DR General reserve CR Retained earnings
B)DR General reserve CR Share capital
C)DR Retained earnings CR General reserve
D)DR Share capital CR General reserve

Question 25

In relation to selecting appropriate accounting policies,the hierarchy in AASB 108 Accounting Policies,Changes in Accounting Estimates and Errors requires that consideration is secondly given to:

A)management using its judgement in developing and applying an accounting policy that results in information that is relevant and reliable.
B)the requirements in Australian Accounting Standards dealing with similar and related issues.
C)any Australian Accounting Standard that specifically applies to the transaction,other event or condition.
D)the definitions,recognition criteria and measurement concepts for assets,liabilities,income and expenses in the Conceptual Framework.

Question 26

The recognition criteria for assets,liabilities,revenues and expenses in the Conceptual Framework are the same.

Question 27

Which of the following statements is not one of the four main financial statements that companies are required to prepare?

A)A statement of cash flows
B)A statement of changes in equity
C)A statement of retained earnings
D)A statement of financial position

Question 28

The recognition criteria for assets in the Conceptual Framework refers to the probability of future economic benefits flowing to an entity.Probable means more than a 75% chance of occurring.

Question 29

According to the Conceptual Framework,measurement involves determining the monetary amounts at which the elements are to be recognised and carried at in the financial statements.

Question 30

Under the Conceptual Framework,the settlement of a liability can be made in a number of ways,including by conversion of the obligation into equity.

Question 31

An entity's operating cycle cannot be greater than 12 months.

Question 32

Outflows outside the ordinary course of business (eg costs incurred from a natural disaster)are classified as losses,rather than expenses.

Question 33

The Conceptual Framework applies a balance sheet focus to defining income,with income arising from changes in assets and liabilities.

Question 34

For a company,retained earnings represent:

A)contributed capital from shareholders.
B)profits retained by the company before tax is paid to the government.
C)net cash retained by the company before any payment of dividends to shareholders.
D)profits retained by the company after payment of dividends,and after any transfer to and from reserves.

Question 35

All assets are measured initially at historical cost.

Question 36

To be recognised in a statement of profit and loss and other comprehensive income,an item must by nature be:

A)either income,an expense or item of other comprehensive income.
B)both income and a liability.
C)either an asset or a liability.
D)both a liability and a direct adjustment to equity.

Question 37

Constructive obligations are those that arise from legally binding contracts.

Question 38

Information in a company's financial statements is considered to be reliable when it:
I is relevant to the decision making needs of users.
II represents faithfully the financial position,financial performance and cash flows of the entity.
III is neutral.
IV is prudent.
V reflects the economic substance of transactions,other events and conditions.

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

Question 39

Assets must always be classified in the statement of financial position on the basis of the expected timing of cash flows to be derived from their use or sale.

Question 40

Reserves that are not required by accounting standards are known as:

A)specific reserves.
B)general reserves.
C)current reserves.
D)retained reserves.

Question 41

According to the Conceptual Framework,an entity is not permitted to change its accounting policies.

Question 42

The Reserves accounts of a company are disclosed in the statement of financial position as liabilities.

Question 43

The statement of changes in equity shows the movement between the beginning and ending balance for the period for each equity account.

Question 44

There are no separate measurement methods for equity.

Question 45

The statement of profit or loss and other comprehensive income shows both the company's income (revenues and gains)less expenses for the year,to determine the company's profit,to which is added other items of comprehensive income.

Question 46

In the absence of an Australian accounting standard specifically applying to a transaction,accounting policies must be selected on the basis that they provide relevant and reliable information to users of the financial report.

Question 47

Nominal or face value is the most common method used for measuring liabilities.

Question 48

According to the Corporations Act,dividends can only be paid out of the profits earned by a company.

Question 49

The statement of financial position must be presented to show assets less liabilities equals equity.