Question 1

In most businesses,profit is recognised at the point of sale.

Accepted Answer

Profit is recognized at the point of sale in most businesses because it is the moment when revenue from a customer transaction exceeds the costs of producing and selling the product or service. However, there may be exceptions to this general rule depending on the accounting method used and the nature of the business.

Question 2

AASB 110 refers to subsequent events that provide evidence about conditions that existed at reporting date.Such events:

Accepted Answer

The answer of AASB 110 refers to subsequent events that...

Question 3

Which of the following is not a type of 'value'?

Accepted Answer

All three options (A, B, and C) are types of value. Current cost refers to the cost of an asset at the present time, historical cost refers to the original cost of an asset when it was first acquired, and selling price refers to the amount for which an asset is sold. Therefore, none of the options are incorrect.

Question 4

The term 'revenue recognition' means the recording of revenue in the accounting records and its reporting in the income statement.

Accepted Answer

Revenue recognition refers to the process of recording revenue in the accounting records and reporting it in the income statement.

Question 5

Accountants generally make no adjustments for changes in the value of the dollar.

Accepted Answer

Accountants generally do not make adjustments for changes in the value of the dollar as it is not considered a significant enough change to warrant adjustment in financial statements.

Question 6

AASB 110 refers to subsequent events that relate to conditions that have arisen after the reporting date.Such events,if they could influence decision making:

Accepted Answer

Subsequent events that could influence decision making, but relate to conditions that have arisen after the reporting date, must be disclosed in a footnote to the financial statements according to AASB 110. They do not require adjustments to the figures in the financial statements. A special mail-out to shareholders is not necessary.

Question 7

Which of these items must be disclosed in general purpose financial reports under AASB 101?

Accepted Answer

All of the above items must be disclosed in general purpose financial reports under AASB 101. Interest on borrowings is disclosed in the notes to the financial statements, different categories of receivables are presented in the balance sheet and comparative figures are provided in the statement of financial position and the statement of profit or loss and other comprehensive income.

Question 8

AASB 101 requires a summary of significant accounting policies to be included in the director's report that accompanies the financial statements.

Accepted Answer

AASB 101 requires a summary of significant accounting policies to be included in the notes to the financial statements, not in the director's report.

Question 9

A specific exception to the use of historical cost to value assets is if the net realisable value of inventories falls below cost.In this case,the justification for the use of market value rather than cost relies on the:

Accepted Answer

The justification for using market value rather than cost in this case is based on the conservatism principle, which dictates that losses should be recognized as soon as they are probable, but gains should only be recognized when certain. This principle ensures that financial statements are not overstated and that stakeholders are provided with a more accurate picture of a company's financial position.

Question 10

The Australian Accounting Standard dealing with hyperinflation is:

Accepted Answer

The Australian Accounting Standard dealing with hyperinflation is AASB 129.

Question 11

AASB 101 requires that accounting policy changes be disclosed in a note to the financial statements.A business bought new equipment and thought it would have a six-year useful life.After two years,the business decided that the equipment would be useful for only three more years.This would be considered a:

Accepted Answer

This is a change in accounting estimate as it involves revising the estimated useful life of the equipment. It is not a change in accounting policy, as the business is not changing the method of accounting for similar transactions or events. It is also not a recording error or contingency.

Question 12

The underlying basis for the use of historical cost is the:

Accepted Answer

The historical cost principle is based on the reliability principle, as it assumes that recorded transactions are reliable because they are based on objective evidence. Historical cost is also used for assets because it provides a verifiable and auditable basis for determining asset values. This principle is often used in financial accounting because it is objective, verifiable, and meets the reliability principle of accounting.

Question 13

Under AASB 108,a change in the useful life of a fixed asset which affects the depreciation charge is regarded as a change in accounting policy,not a change in an accounting estimate.

Accepted Answer

The answer of Under AASB 108,a change in the useful...

Question 14

In Australia,in recent years,there has been a move to show some assets at current cost rather than at historical cost.This is because the need for relevancy sometimes outweighs the requirement for reliability.

Accepted Answer

The statement is true. It reflects the trade-off between relevance and reliability in financial reporting, where showing assets at current cost (fair value) provides more relevant information to users, even though it may sacrifice some reliability compared to historical cost accounting.

Question 15

Under the percentage of completion method,which is used to record profit on assets that take several years to construct,profit is reported as the instalments of contract income that are received.

Accepted Answer

Under the percentage of completion method, profit is recognized based on the percentage of completion of the project, not just based on the instalments of contract income received.

Question 16

Under AASB 101,which of the following is not required to be disclosed in the annual reports of ASX-listed companies?

Accepted Answer

According to AASB 101, all of the mentioned items are required to be disclosed in the annual reports of ASX-listed companies, making option D the correct answer.

Question 17

AASB 110 refers to subsequent events that relate to new matters that have arisen after balance date.Which of the following occurrences after balance date is not an example of a new event?

Accepted Answer

Specific information on the size of a bad debt that had previously been considered doubtful is not an example of a new event as the underlying cause for the doubtful debt was already present at balance date. It is merely a new information pertaining to an existing event.

Question 18

Accounting standard AASB 101 requires that a summary of accounting policies should be included:

Accepted Answer

According to accounting standard AASB 101, a summary of accounting policies should be included in the notes to the financial statements. This allows stakeholders to understand the accounting methods and principles used in preparing the financial statements. A summary of accounting policies would not be appropriate as a schedule attached to the annual report, as it may not be easily accessible or visible to readers. Similarly, it would not be appropriate to include on the first page of the annual report or as a footnote to the balance sheet, as these locations would not provide sufficient detail or clarity about the accounting policies used.

Quiz 17: The Framework of Accounting