1. IFRS Framework and standards
Ch. 1
1.
Which of the following statements is INCORRECT?
*a.
The International Accounting Standards Board was replaced by the International
Standards Committee in 2001.
b.
The International Accounting Standards Board is funded by the IASC Foundation.
c.
The responsibility for issuing International Financial Reporting Standards lies with the
International Accounting Standards Board.
d.
Members of the International Accounting Standards Board are appointed by the IFRS
Foundation.
2.
Which of the following statements is INCORRECT?
a.
The Framework identifies the qualitative characteristics that make information in financial
statements useful.
*b.
The Framework defines principles for accounting recognition, measurement and
disclosure.
c.
The Framework defines the objective of financial statements.
d.
The Framework defines the basic elements of financial statements and the concepts for
recognizing and measuring them in financial statements.
3.
Which of the following statements is CORRECT?
*a.
IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors requires that The
Framework be followed in the absence of a specific standard or interpretation.
b.
IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors recommends, but
does not require The Framework to be followed in the absence of a specific standard or
interpretation.
c.
The Framework is used solely by the IASB when considering new accounting issues.
d.
The Framework is non-binding guidance which does not have to be followed by preparers
of financial statements.
4.
The Framework focuses on:
a.
privately owned business entities only.
*b.
business entities only, including private and state owned business entities.
c.
business entities, although the concepts may be applied to other types of entities, such as
not-for profit entities.
d.
all types of entities, including business entities, government and not-for profit entities.
5.
General Purpose Financial Statements:
a.
are only necessary for users who do not have the power to obtain information in addition
to that contained within the General Purpose Financial Statement.
b.
provide all the information that users may need to make economic decisions.
c.
focus on disclosing information relevant to assessing the ability of an entity to generate
future cash flows.
*d.
meet the information needs that are common to all users.
6.
Which of the following statements is INCORRECT in relation to the preparation of financial
statements?
a.
General Purpose Financial Statements must be prepared in accordance with accounting
standards.
b.
General Purpose Financial Statements are reports intended to meet the information
needs common to users who are unable to command the preparation of reports tailored
so as to specifically meet all their information needs.
*c.
The sole objective of a General Purpose Financial Statement is to serve an economic
decision making objective.
d.
The objective of a General Purpose Financial Statement is to provide information useful to
users for making and evaluating decisions about the allocation of scarce resources.
7.
Which of the following statements is INCORRECT?
a.
Information about the variability of profits helps in forecasting future cash flows from an
entity’s existing resources.
*b.
Performance of an entity is determined solely through examination of the
Statement of Profit or Loss and Other Comprehensive Income of an entity.
c.
An entity’s Statement of Cash Flows provides insight into changes in assets and liability
balances during an accounting period.
d.
The Statement of Financial Position presents information relating to economic resources,
the financial structure of an entity, liquidity and solvency and capacity to adapt to changes
in an entity’s environment.
8.
The purpose of the notes to the financial statements are to:
a.
explain any resources and obligations not recognised in the Statement of Financial
Position
b.
provide information meeting the disclosure requirements under national laws or
regulations.
c.
disclose risks and uncertainties affecting the entity.
*d.
all of the above.
9.
Which of the following income and expense items is NOT recorded initially directly in equity?
*a.
The impairment of goodwill in accordance with IAS 36 Impairment of Assets, where the
entity is confident that the factors giving rise to the impairment will reverse in a future
period.
b.
An increase in the fair values of land & buildings, where the revaluation method is used to
account for land & buildings in accordance with IAS 16 Property, Plant & Equipment.
c.
A change in the fair value of an investment in another entity, which is classified as an
available-for-sale financial asset in accordance with IAS 39 Financial Instruments:
Recognition & Measurement.
d.
Foreign currency translation adjustments arising on the translation of a foreign operations
financial statements from their functional currency in accordance with IAS 21 The Effects
of Changes in Foreign Exchange Rates.
10.
Which category of user is most likely to be interested primarily in the Statement of Profit or Loss
and Other Comprehensive Income of an entity?
a.
suppliers and trade creditors
*b.
shareholders
c.
employees
d.
lending institutions
11.
The four principal qualitative characteristics that make information in financial statements useful
to investors identified within The Framework are:
a.
Relevance, reliability, timeliness and comparability
b.
Timeliness, reliability, relevance and understandability
*c.
Comparability, understandability, relevance and reliability
d.
Comparability, understandability, timeliness and reliability
12.
Accounting information that is complete is an example of information that satisfies which of the
following characteristics of financial information identified in The Framework?
a.
Understandability
b.
Relevance
*c.
Reliability
d.
Comparability
13.
Information that is able to confirm or correct past evaluations that have been made by users of
financial information is an example of information that satisfies which of the following
characteristics of financial information identified in The Framework?
a.
Understandability
*b.
Relevance
c.
Reliability
d.
Comparability
14.
Which of the following statements in relation to income is true?
*a.
Gains are normally reported separately from revenue in the Statement of Profit or Loss
and Other Comprehensive Income due to the different probabilities attached to that type
of income.
b.
The Framework requires that all items of income are reported on a net basis.
c.
Gains and revenue are different in nature and therefore are recognised as separate
elements of the financial statements per The Framework.
d.
The Framework defines income as an increase in economic benefits which results in an
increase in equity.
15.
Which of the following statements is INCORRECT in relation to the recognition criteria for elements
of the financial statements?
a.
Assets are recognised when it is probable that future economic benefits will flow to the
entity and the asset has a cost or value that can be measured reliably.
b.
Because equity is the arithmetic difference between assets and liabilities, a separate
recognition criteria for equity is not needed in The Framework.
c.
Liabilities are recognised when it is probable that an outflow of resources embodying
economic benefits will result from the settlement of a present obligation and the amount
at which settlement will take place can be measured reliably.
*d.
Income is recognised when an increase in future economic benefits related to a decrease
in an asset or an increase in a liability that has arisen can be measured reliably.
16.
In relation to the concept of recognition of an item in the financial statements:
a.
Items of equity must satisfy both the probability and measurement criteria before they
can be recognised.
b.
Assets can only be recognised where there is a high probability of future economic
benefits flowing to the entity.
c.
Expenses are recognised when a decrease in a future economic benefit related to an
increase in an asset or a decrease in a liability has arisen that can be measured reliably.
*d.
For items to qualify for recognition in the financial statements as liabilities or income they
must first satisfy the definition of an element, and then meet both the probability and
measurement requirements in relation to recognition.
17.
Which of the following is NOT a criteria for recognition of revenue from the sale of goods under IAS
18 Revenue?
a.
The seller has transferred the significant risks and rewards of ownership to the buyer.
b.
The costs incurred, or to be incurred, in respect of the transaction can be measured
reliably.
*c.
The stage of completion at the statement of financial position date can be measured
reliably.
d.
The amount of revenue can be measured reliably.
18.
When recognising revenue from the rendering of services in accordance with IAS 18 Revenue
a.
Revenue arising from the rendering of services can only be recognised when all of the
recognition criteria in paragraph 20 have been satisfied.
*b.
The method for recognising revenue from the rendering of services when all of the
paragraph 20 recognition criteria have been met is referred to as the ‘percentage-ofcompletion’ method.
c.
IAS 18 requires that revenue from the rendering of service be recognised on an accruals
basis.
d.
The method for recognising revenue from the rendering of services is referred to in IAS 18
as the ‘cost recovery’ approach.
19.
Which of the following is a key assumption underlying the preparation of financial statements?
*a.
the going concern basis of accounting
b.
the matching principle
c.
the prudence principle
d.
the historical cost measurement basis
20.
In relation to measurement of the elements of financial statements
*a.
The Framework acknowledges that a variety of measurement bases are used to different
degrees and in varying combinations in financial statements.
b.
The Framework includes detailed concepts and principles for selecting which
measurement basis should be used for particular elements of financial statements.
c.
Net realisable value is the preferred basis for measurement of assets.
d.
The Framework adopts a mixed attribute accounting model
21.
Which of the following bodies report to the IFRS Foundation?
a.
The IASB and AASB
b.
The IASB, AASB and the IFRS Advisory Council
c.
The IASB and the FASB
*d.
The IASB and the IFRS Advisory Council
22.
If management intends to liquidate the entity’s operations, financial statements are prepared on
the basis of
a.
Historical cost
b.
Historical cost with a note that the entity is about to liquidate
*c.
Expected liquidation values
d.
Financial statements do not have to be prepared.
23.
The IASB conceptual framework for financial reporting describes the basic concepts that underlie
financial statements and defines:
a.
the principles for measurement;
b.
disclosure principles;
*c.
the elements of financial statements
d.
accounting recognition criteria.
24.
The measurement method most commonly used in the preparation of financial statements is:
a.
present value;
b.
current replacement cost;
c.
discounted future cash flows;
*d.
historical cost.
25.
The qualitative characteristics that make financial information useful for decision-making include:
I
II
III
IV
comparability
Yes
Yes
No
Yes
relevance
Yes
Yes
No
Yes
understandability
Yes
No
No
Yes
unreliability
Yes
No
No
No
a.
I;
b.
II;
c.
III;
*d.
IV.
26.
In making a judgment in developing or applying an accounting policy about whether information is
relevant and reliable in the financial statements, management must refer to the following
reference first:
a.
the definitions in the IASB Framework;
*b.
requirements and guidance in Standards and Interpretations;
c.
recognition criteria contained in the IASB Framework;
d.
the measurement concepts for assets, liabilities, income and expenses in the IASB
Framework.
27.
An asset is defined in the conceptual framework as:
a.
a resource controlled by the entity as a result of past events
b.
a resource controlled by the entity as a result of future events and from
which possible future economic benefits may flow to the entity.
c.
a resource controlled by the entity from which future economic benefits are
expected to flow to the entity.
*d.
a resource controlled by the entity as a result of past events and from which
future economic benefits are expected to flow to the entity.
28.
A liability is defined in conceptual framework as:
a.
possible obligation of the entity, the settlement of which is expected to result in an
outflow from the entity of resources embodying economic benefits.
b.
a possible obligation of the entity expected to arise from future events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.
*c.
a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources
embodying economic benefits.
d.
a present obligation of the entity arising from past events, the settlement of
which is expected to result in an inflow to the entity of resources embodying
economic benefits.
29.
In accordance with the conceptual framework, income is recognised in the statement of profit or
loss and other comprehensive income when:
a.
an decrease in future economic benefits relating to an decrease in an asset or an increase
in a liability can be measured reliably.
*b.
an increase in future economic benefits relating to an increase in an asset or a decrease in
a liability can be measured reliably.
c.
an increase in future economic benefits relating to an increase in an asset can be
measured reliably.
d.
an increase in future economic benefits relating to an decrease in an asset or a increase in
a liability can be measured reliably.
30.
Expenses are recognised in the statement of profit or loss and other comprehensive
income when
a.
increase in future economic benefits related to a increase in an asset or an
increase in a liability can be measured reliably.
*b.
a decrease in future economic benefits related to a decrease in an asset or an
increase in a liability can be measured reliably.
c.
a decrease in future economic benefits related to a decrease in an asset or an
decrease in a liability can be measured reliably.
d.
none of the options are correct.
2. Fair value measurement
Ch. 3
1.
Which of the following is not one of the key reasons given by the IASB for issuing a standard on fair
value measurement?
a.
to establish a single source of guidance for all fair value measurements required or permitted
by IFRSs to reduce complexity and improve consistency in their application;
b.
to clarify the definition of fair value and related guidance in order to communicate the
measurement objective more clearly;
*c.
to require the use of fair value when accounting for all non-financial assets
d.
to enhance disclosures about fair value to enable users of financial statements to assess the
extent to which fair value is used and to inform them about the inputs used to derive those
fair values.
2.
Which of the following documents issued alongside IFRS 13 do not form an integral part of the
standard?
I Basis for Conclusions
II Illustrative Examples
III
Appendix A: Defined terms
IV
Appendix B: Application guidance
*a.
b.
c.
d.
I and II
II and III
III and IV
I and IV
3.
Which of the following is the definition of fair value per IFRS 13?
a.
The amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction
*b.
The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
c. The price that would be received to sell an asset or paid to transfer a liability.
d.
A transaction that assumes exposure to the market for a period before the measurement
date to allow for marketing activities that are usual and customary for transactions involving
such assets or liabilities; it is not a forced transaction (eg a forced liquidation or distress sale).
4.
At which date is fair value determined?
*a.
the measurement date
b.
the settlement date
c.
the transaction date
d.
the exchange date
5.
When determining the fair value of an asset its fair value is based on its:
a.
Current use
b.
Proposed use
*c.
Highest and best use
d.
Value in use
6.
7.
Which of the following is not a valuation technique prescribed by IFRS 13?
*a.
the fair value approach
b.
the income approach
c.
the cost approach
d.
the market approach
The market with the greatest volume and level of activity for the asset or liability is defined as the:
a.
active market
*b.
principal market
c.
liquid market
d.
most advantageous market
8.
Valuation techniques that convert future amounts to a single current amount and determines the
fair value on the basis of the value indicated by current market expectations about those future
amounts is an example of:
a.
the fair value approach
*b.
the income approach
c.
the cost approach
d.
the market approach
9.
Unobservable inputs for the asset or liability are an example of:
a.
a Level 1 input
b.
a Level 2 input
*c.
a Level 3 input
d.
a Level 4 input
10.
Which of the following is not an example of a level 2 input?
*a.
a financial forecast of cash flow or earnings
b.
quoted prices for identical or similar assets or liabilities in markets that are not active
c.
inputs other than quoted prices that are observable for the asset or liability, such as interest
rates and yield curves, volatilities, prepayment speeds, and credit risks
d.
inputs that are derived from or corroborated by observable market data by correlation or
other means.
11.
Trademarks would be measured primarily using which type of inputs?
a.
Level 1 inputs
b.
Level 2 inputs
*c.
Level 3 inputs
d.
Level 4 inputs
12.
Which of the following steps in not relevant when valuing liabilities?
a.
the particular liability that is the subject of the measurement
*b.
the valuation premise that is appropriate for the measurement
c.
the principal (or most advantageous) market for the liability
d.
the valuation technique(s) appropriate for the measurement, considering the availability
of data with which to develop inputs that represent the assumptions that market participants
would use when pricing the asset or liability and the level of the fair value hierarchy within
which the inputs are categorised.
13.
When measuring the fair value of a liability, which of the following is assumed?
a.
the liability is settled by the holder
*b.
the liability will be settled by the market participant
c.
the liability will not be settled
d.
the liability is settled with the counterparty on measurement date
14.
Where a liability is held as a corresponding asset by another entity the fair value of the liability is
determined by:
a.
applying a present value technique to measure the liability
b.
applying the cost approach to valuing the liability
*c.
measuring the fair value of the corresponding asset
d.
determining the amount required to settle the present obligation
15.
In which circumstance will it be necessary to determine the fair value of an entity’s own equity
instruments?
a.
where the entity is preparing for listing
*b.
where the entity undertakes a business combination and issues its own equity instruments
in exchange for a business
c.
where the entity undertakes a share buy-back
d.
where there is a change in the shareholding of the entity.
16.
Which of the following is not assumed when measuring the fair value of an equity instrument?
a.
The market participant transferee will take on the rights and responsibilities associated
with the instrument
*b.
An entity’s own equity instruments are transferred to a market participant at transfer date
c.
An entity’s own equity instrument would remain outstanding
d.
The instrument would not be cancelled or otherwise extinguished on the measurement
date.
17.
Where a market has both a bid and an ask process, the price used in measuring fair value is:
a.
the bid price
b.
the ask price
c.
the bid-ask spread
*d.
the most representative price for the transaction.
18.
An entity holding both financial assets and liabilities is allowed to offset and determine fair value on
the net position as long as:
I
II
III
IV
V.
a.
b.
*c.
d.
they hold a net long position
they hold a net short position
they have a documented risk management strategy
the manage the group of net financial assets and liabilities on a net exposure basis
transactions are conducted in an orderly market
I and III
II and IV
III and IV
II and V
19.
Which of the following disclosures are not required under IFRS 13?
a.
the valuation techniques used to measure fair value
b.
the inputs used to measure fair value
c.
the level of the fair value hierarchy within which the fair value measurements are categorised
*d.
quantitative information about all unobservable inputs used in the fair value measurement
20.
Which of the following does Whittington (2008) see as a main feature of the fair value view?
a.
Stewardship, defined as accountability to present shareholders, is a distinct objective, ranking
equally with decision usefulness.
*b.
Reliability is less important and is better replaced by representational faithfulness, which
implies a greater concern for capturing economic substance, and less with statistical accuracy.
c.
Present shareholders of the holding company have a special status as users of financial
statements.
d.
Future cash flows may be endogenous: feedback from shareholders and markets in response
to accounting reports may influence management decisions.
21.
Which are the two most common measures used in Accounting Standards?
a.
fair value less costs to sell and cost
b.
value in use and cost
*c.
cost and fair value
d.
net realisable value and fair value.
22.
Which of the following is the definition of exit price per IFRS 13?
a.
A transaction that assumes exposure to the market for a period before the measurement
date to allow for marketing activities that are usual and customary for transactions involving
such assets or liabilities; it is not a forced transaction (e.g. a forced liquidation or distress
sale).
b.
The amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction
c.
The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
*d.
The price that would be received to sell an asset or paid to transfer a
liability.
23.
Which of the following is not a characteristic of a market participant under IFRS 13?
a.
Buyers and sellers that are able to enter into a transaction for the asset or
liability.
b.
Buyers and sellers that are willing to enter into a transaction for the asset or liability,
*c.
Buyers and sellers that are dependent on each other.
d.
Buyers and sellers that are knowledgeable, having a reasonable understanding about the
asset or liability and the transaction using all available information.
24.
Which of the following is an indication of an active market?
a.
there are few recent transactions
b.
price quotations vary substantially over time
c.
price quotations vary substantially among market-makers
*d.
price quotations are based on current market information.
25.
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date are an example of:
a.
a Level 2 input
*b.
a Level 1 input
c.
a Level 3 input
d.
a Level 4 input
26.
Non-performance risk refers to the risk that:
a.
a market participant will not fulfil an obligation
*b.
the holder of the liability will not fulfil an obligation
c.
the counterparty will not fill an obligation
d.
the holder of a corresponding asset will not fulfil an obligation.
27.
Which of the following is an example of a liability where there is no corresponding asset?
*a.
a provision for decommissioning
b.
a debenture issued by a listed company
c.
a loan owing to a financial institution
d.
a provision for warranties.
28.
In measuring an equity instrument at fair value the objective is to estimate an exit price at
measurement date from the perspective of:
a.
the issuer of the equity instrument
b.
the party to whom the instrument will be transferred
c.
the party who intends to repurchase the instrument.
*d.
a market participant who holds the instrument as an asset.
29.
The fair value of an equity instrument is based on determining a/an _________ price which may
relate to the price paid for an entity to repurchase its shares.
a.
transfer
b.
settlement
c.
entry
*d.
exit.
30.
Which of the following disclosure are required under IFRS 13?
a.
the valuation techniques used to measure fair value
b.
the level of the fair value hierarchy within which the fair value measurements are categorised
c.
quantitative information about the significant unobservable inputs used in the fair value
measurement
*d.
all of the options are correct.
3. Revenue recognition
Ch. 4
1.
The Appendix to IAS 18 contains illustrative examples which:
a.
are not part of the standard itself.
b.
in some cases contradicts the requirements within the body of IAS 18.
c.
in some cases is inconsistent with the principles within the Conceptual
Framework
*d.
all of the options are correct.
2.
The two elements of performance referred to in the Conceptual Framework are:
a.
assets and liabilities
b.
revenue and expenses
c.
liabilities and equity
*d.
expenses and income
3.
Which of the following is NOT an example of an agency arrangement where the selling entity
would recognise revenue on a net basis?
a.
A travel agent selling an airline ticket to a customer, charging the customer $200 and
remitting $180 to the airline.
b.
A supermarket selling groceries to a customer for $110 and remitting $10 GST to the
government.
*c.
A distributor receiving stock from its supplier on a sale-or–return basis. The sales price
per unit is $120 and the cost per unit is $75
d.
A licensed hotel selling keno tickets to customers for $5.00 and remitting $4.50 per ticket
to the state gaming authority.
4.
Which of the following is NOT excluded from the scope of IAS 18 Revenue?
a.
Accounting for share of joint venture revenue.
*b.
Subscriptions
c.
Revenue arising from primary production activities
d.
Revenue arising from oil and gas exploration
5.
Which of the following are excluded from the scope of IAS 18?
6.
I
II
III
IV
the initial recognition of agricultural produce
insurance contracts within the scope of IFRS 4
the extraction of mineral ores
lease agreements
a.
b.
c.
*d.
I, II only
II, III and IV only
I, III and IV only
I, II, III and IV
When consideration is deferred and there is a below-market rate of interest charged the fair value
of the consideration should be determined:
a.
as the nominal amount of the cash receivable
*b.
by discounting all future receipts using an imputed rate of interest
c.
by discounting all future receipts using the interest rate in the contract
d.
as the recommended retail price of the item sold.
7.
The following information relates to SellIT:
5000 units of stock were sold for $10 per unit
the cost of that stock to SellIT was $4.50 per unit
other costs incurred during the period totalled $10 000
proceeds on sale of an item of plant during the period was $2000
the carrying amount of the plant at the date of disposal was $500.
SellIT would recognise the following amount as revenue for the period:
a.
$27 500
*b.
$50 000
c.
$51 500
d.
$52 000
8.
House Proud Pty Ltd
is operating a promotion selling furniture under the following conditions:
Initial deposit of 20% of purchase price.
Immediate delivery of furniture.
Interest rate of 12.5%pa charged on the outstanding balance.
Repayment of the balance (including the interest) over 24 equal monthly instalments.
House Proud retains legal title to the furniture until the final monthly payment has been
made.
House Proud would recognise revenue as follows:
a.
Recognise interest as it is received (monthly) and recognise the revenue on the sale of the
goods once the final payment has been received.
b.
Recognise all revenue as it is received
*c.
Recognise interest as it is received (monthly) and recognise the revenue on the sale of the
goods upfront.
d.
Recognise the whole amount of revenue upfront
9.
Which of the following is NOT a condition that needs to be satisfied prior to recognising revenue
from the rendering of services using the ‘percentage of completion’ method?
a.
the amount of revenue can be measured reliably
b.
the stage of completion of the transaction can be measured reliably
c.
the costs of the transaction (including future costs) can be measured reliably
*d.
the contract is non-cancellable.
10.
Under IAS 18 interest revenue is recognised as follows:
a.
On a straight line method
*b.
On an effective interest method
c.
On either an effective interest method, or a straight line method, depending on which
method the entity feels provides the most relevant and reliable information.
d.
At the time of receipt of the interest.
11.
Special Limited is in the business of producing and distributing special screenings on various topics.
On 1 January 2014, Special granted a license to TV 101 for $250 000 in relation to a special titled
“The Big Ice”. The following conditions were attached to the license:
TV 101 was allowed to show the special once only within the 2014 calendar
year.
TV 101 could choose the date and time of the screening.
The documentary was delivered to TV 101 on 1 January 2014. TV 101 screened the documentary
on 30 March 2014. The $250 000 fee was paid to Special on 30 March 2014.
Special should recognise revenue as follows:
a.
Recognise the $250 000 on 1 January 2014.
b.
Recognise the $250 000 evenly over the 2014 calendar year.
*c.
Recognise the $250 000 on 30 March 2014 (the date of screening)
d.
Recognise the $250 000 on 31 December 2014.
12.
Deefer Limited sold an item of machinery on 1 July 2013 on the following terms:
Initial payment of $25 000
Annual payments of $25 000 for 5 years (total $125 000).
The buyers incremental rate of interest is 7.5% and the present value of the future annual
payments is $101 147.
At 30 June 2014 Deefer would recognise interest revenue of:
a.
$7500
*b.
$7586
c.
$9375
d.
$17 414
13.
ACC, a professional body charges an annual fee of $600 for subscription to its publications. The
$600 fee entitles customers to receive a copy of the latest version of the professional standards
relevant to their industry (updated annually). Subscribers also receive monthly newsletters for the
duration of the subscription period.
ACC should recognise the $600 as follows:
a.
Recognise the whole $600 as revenue upfront
b.
Recognise revenue of $50 per month across the period of the annual
subscription.
*c.
Recognise an amount upfront in relation to the copy of the professional standards, with
the balance being recognised evenly across the period of the annual subscription.
d.
Recognise the whole $600 as revenue at the end of the subscription period
14.
Big Bank Limited provides Good Sport Pty Ltd with a five-year loan to finance the construction of a
new sporting stadium. Good Sport had the choice of paying a market rate of interest (7.5% at the inception
of the loan) or paying interest at a rate of 1.5% below the market rate, and paying in addition a fixed
‘arrangement fee’ of $200 000 to compensate Big Bank for charging an interest rate below the fair market
value. Good Sport chose the second option.
Big Bank should recognise revenue from the arrangement fee as:
a.
fee revenue as services are provided by Big Bank
b.
fee revenue on the completion of the significant act of drawing down the
loan
c.
interest revenue on the completion of the significant act of drawing down the loan
*d.
interest revenue over the life of the loan in accordance with the effective interest
method.
15.
Orange Pty Ltd develops and sells off-the-shelf accounting software packages. The retail price of
each package is $399 (GST inclusive). Included with each purchase are “free” upgrades for a period
of 12 months after the date of purchase. These upgrades can be purchased separately for $80
(GST inclusive).
At the date of purchase of the software package by a customer, Orange should record revenue of:
*a.
$290.00
b.
$319.00
c.
$362.72
d.
$399.00
The following information relates to questions 16 and 17
TelCo provides a bundled service offering to a customer for $3000 upfront. The services provided
are as follows:
Upfront advice
‘on-call’ advice
Database access for a 2-year period
If TelCo were to charge a separate fee for each service if sold separately the fee would be:
Up-front advice $200
On-call advice $2600
Database access $800
16.
Using the relative fair value approach the amount of revenue recognised in relation to the on-call
advice is:
a.
indeterminable based on the facts provided
b.
$1000
*c.
$2167
d.
$2600
17.
The revenue that would be recorded by TelCo at the inception of the agreement is:
*a.
$166
b.
$833
c.
$1500
d.
$3000
18.
The effect that IFRIC Interpretation titled Agreements for the Construction of Real Estate will have
the following effect for entities that undertake off-the-plan real estate sales is that:
*a.
the percentage of completion method of revenue recognition will be discontinued.
b.
the use of the completed contracts method of revenue recognition will be discontinued.
c.
the amount of revenue recognised on such sales will reduce.
d.
the amount of revenue recognised on such sales will increase.
19.
Which of the following disclosures are required under IAS 18?
I
II
III
period
IV
a.
*b.
c.
d.
total income, allocated between revenue and other gains
the accounting policies adopted for revenue recognition
the amount of each significant category of revenue recognised during the
the amount of revenue arising from exchanges of goods and services.
I and II only
II, III and IV only
I, II and III only
I, II, III and IV
20.
The IASB/FASB Exposure Draft titled Revenue from Contracts with Customers is inconsistent with
the principles within which of the following?
a.
The Conceptual Framework for Financial Reporting
*b.
IAS 18 Revenue
c.
IFRIC 13 Customer Loyalty Programmes
d.
All of the options are correct
21.
Which of the following items are defined in IAS 18?
a.
Income
*b.
Revenue
c.
Gains
d.
All of the above
22.
Easter Pty Ltd operates a facility making chocolate Easter eggs. Easter has a policy that all unsold
chocolate eggs can be returned for a full refund within 1 week of Easter Sunday. On 1 March 2014,
Easter sold 500 pallets of packaged eggs at $100 per pallet. Historical data indicates that 20% of
the stock will be returned for a refund. Within one month of Easter Sunday (by the end of April
2014) 10% of the eggs were retuned for refund. Using the expected sales approach, how much
revenue would be recognised by Easter at the end of April 2014?
a.
Nil
b.
$40 000
*c.
$45 000
d.
$50 000
23.
Deefer Limited sold an item of machinery on 1 July 2014 on the following terms:
Initial payment of $25 000
Annual payments of $25 000 for 5 years (total $125 000).
The buyers incremental rate of interest is 7.5% and the present value of the future annual
payments is $101 147.
At the time of sale of the machine Deefer would recognise revenue of:
a.
b.
*c.
d.
$25 000
$125 000
$126 147
$150 000
24.
Which of the following is NOT an example of an entity retaining significant risks and rewards of
ownership?
a.
The entity retains an obligation for unsatisfactory performance not covered by normal
warranty provisions.
b.
The receipt of revenue from a particular sale is contingent on the buyer reselling the
goods.
c.
The goods are shipped subject to installation, and the installation is a significant part of
the contract that has not yet been completed by the entity.
*d.
The buyer has the right to rescind the purchase for a reason specified in the sales
contract. The entity is confident that this option will not be exercised.
25.
On 1 July 2010 ABC Ltd purchased a 5-year $1000 5% debenture for $957.88. The current market
rate of interest is 6%. The maturity date is 30 June 2015. Interest is payable annually on 30 June.
The interest income that ABC would recognise for the year ended 30 June 2011 is:
a.
$47.89
b.
$50.00
*c.
$57.47
d.
$60.00
26.
Which of the following is incorrect in relation to consignment sales?
a.
A consignment sale is one where the owner transfers possession of the goods but not
legal title to a third party (agent).
b.
On sale of an item held on consignment, the agent remits the proceeds to the owner
(normally less commission).
c.
The owner will recognise revenue on consignment sales at the time of sale of the item to
the ultimate customer.
*d.
Consignment sales are a common way of increasing revenue at or near the end of a
period.
27.
On 1 January 2014 ABC Ltd sold goods to ZZZ Pty Ltd for a total price of $1 000. Under the terms of
the sale ZZZ is able to return the goods within five days of delivery. On 3 January 2014 ZZZ returned 30% of
the goods.
ABC would recognise revenue as follows:
a.
$1 000 to be recorded as revenue on 1 January 2014
b.
$700 to be recorded as revenue on 3 January 2014
*c.
$700 to be recorded as revenue on 5 January 2014
d.
None of the above
28.
The introduction of IFRIC 13 Customer Loyalty Programmes had the following impact on revenue
recognition policies for entities in the airline industry:
a.
no impact
b.
reduced the amount of revenue able to be recognised
c.
increased the amount of revenue able to be recognised
*d.
changed the timing of the recognition of revenue
29.
In terms of revenue related disclosures on the face of the statement of profit or loss and other
comprehensive income:
a.
IAS 1 Presentation of Financial Statements requires revenue by category to be disclosed
on the face of the statement of profit or loss and other comprehensive income.
b.
IAS 18 Revenue requires revenue by category to be disclosed on the face of the statement
of profit or loss and other comprehensive income.
*c.
IAS 1 Presentation of Financial Statements requires total revenue to be disclosed on the
face of the statement of profit or loss and other comprehensive income.
d.
IAS 18 Revenue requires total revenue to be disclosed on the face of the statement of
profit or loss and other comprehensive income.
30.
Which of the following events took place in December 2008?
a.
The IASB issued an Exposure Draft proposing amendments to IAS 18.
b.
The FASB formally adopted IAS 18.
*c.
The IASB and FASB jointly issued a Discussion Paper on revenue
recognition.
d.
The IASB issued an amended IAS 18.
4. Property, plant, and equipment
Ch. 11
1.
Property, plant and equipment are assets that:
a.
are expected to be used up within the current financial period
b.
are held for resale within the current period
*c.
are physical in nature
d.
have a remaining productive life of less than one financial year.
2.
Property, plant and equipment includes items that are:
a.
intangible
b.
held for resale
c.
expected to be used up during the current period
*d.
held for rental to others.
3.
The cost of property, plant and equipment is only recognised as an asset if it is probable that the future
economic benefits will flow to the entity and if:
*a.
the cost can be reliably measured
b.
the asset has been fully paid for in cash
c.
the asset has been received by the purchaser
d.
it is a tangible asset.
4.
Jackson Limited acquired a bundle of assets for a cash consideration of $200 000. The fair values of
the assets on date of acquisition was as follows: Building $132 000, Furniture $88 000. The appropriate
journal entry to record this acquisition is:
a.
DR
Property, plant and equipment
$200 000
CR
Cash
$200 000
b.
DR
CR
*c.
d.
5.
Property, plant and equipment
Cash
DR
CR
DR
Building
Furniture
Cash
DR
DR
CR
Building
Furniture
Cash
$220 000
$220 000
$120 000
$ 80 000
$200 000
$132 000
$ 88 000
$220 000
Costs that may be included in the cost of acquisition of Property, plant and equipment assets include:




Site preparation
Initial delivery and handling costs
Installation and assembly costs
Testing whether the asset is functioning
*a.
b.
c.
d.
I
II
III
IV.
I
Yes
Yes
Yes
Yes
II
Yes
No
Yes
Yes
III
Yes
Yes
No
No
IV
No
No
No
No
6.
After an item of Property, plant and equipment has been initially recognised at cost it may be measured
using the following measurement method:
a.
liquidation value
b.
accrual
*c.
revaluation
d.
realisable value.
7.
Under the cost model, after initial recognition of a Property, plant and equipment asset the item must
be carried at its:
a.
residual value
*b.
cost less accumulated depreciation and less accumulated impairment losses
c.
initial cost
d.
net present value.
8.
Wilson Limited applied the straight-line method of depreciation to its non-current assets. The cost of
the buildings was $640 000, the depreciable amount is $560 000, the residual value is $80 000 and the
useful life is 8 years. The annual depreciation charge is:
a.
$80 000
b.
$75 000
*c.
$70 000
d.
$60 000.
9.
Replicator Limited acquired an item of Plant with an expected useful life of 5 years. Expected total
production output over this period was: Year 1, 35 000 units; Year 2, 35 000 units; Year 3, 18 000 units;
Year 4, 12 000 units. The asset cost $ 100 000 and associated installation costs amounted to $20 000
and residual value is $5000. The amount of depreciation charged in the first year is:
*a.
$40 250
b.
$42 000
c.
$35 000
d.
$33 250.
10.
When a company recognises a depreciation credit resulting from a review of the estimated residual
value of a depreciable asset, the depreciation debit should be recognised in accumulated depreciation
and the depreciation credit should be recognised:
a.
in the opening balance of retained earnings
*b.
in the depreciation expense
c.
directly in the depreciable asset account
d.
as a gain in the current period.
11.
A change in accounting policy from the revaluation model to the cost model requires a retrospective
adjustment to the:
a.
revenue in the profit and loss statement
b.
expenses in the profit and loss statement
*c.
opening balance of retained earnings
d.
other comprehensive income.
12.
A non-current Property, plant and equipment asset is depreciated using the straight-line method.
The asset was revalued upwards after four years of use. There is no change in the remaining useful life of six
years or to the residual value. Which of the following relationships reflects the effect of the revaluation on
the prospective depreciation of the asset?
*a.
b.
c.
d.
Depreciation
Rate
Same
Same
Higher
Higher
Annual depreciation
Expense
Higher
Same
Higher
Same
13.
Revaluations under IAS 16 Property, Plant and Equipment apply to:
a.
all assets on an individual basis
b.
individual current assets only
c.
individual non-current assets only
*d.
assets on a class-by-class basis.
Use the following information to answer questions 14 and 15
An extract of a company’s draft statement of financial position at 30 June 2012 discloses the following:
Plant (at cost)
Less Accumulated Depreciation
$500 000
300 000
$200 000
On 30 June 2013 the company assessed the fair value of the plant to be $350 000. At 30 June 2014, the carrying
amount of the Plant was $250 000.
The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line
method.
14.
The journal entries necessary to record the revaluation of plant (ignoring any tax effect) at 30 June 2013
in accordance with IAS 16 Property, Plant and Equipment is:
*a.
b.
c.
d.
15.
Accumulated depreciation – Plant
Plant
Dr
Cr
300 000
Plant
Gain on revaluation - OCI
Dr
Cr
150 000
Plant
Gain on revaluation - OCI
Dr
Cr
150 000
Gain on revaluation - OCI
Asset revaluation surplus
Dr
Cr
150 000
Plant
Gain on revaluation - OCI
Accumulated depreciation - Plant
Dr
Dr
Cr
150 000
150 000
300 000
150 000
150 000
150 000
300 000
The journal entries to adjust for the tax effect of the revaluation at 30 June 2013 is:
a.
b.
c.
*d.
Income tax expense – OCI
Deferred tax liability
Dr
Cr
45 000
Asset revaluation surplus
Income tax expense – OCI
Dr
Cr
45 000
Income tax expense – OCI
Asset revaluation surplus
Dr
Cr
45 000
Income tax expense – OCI
Deferred tax liability
Dr
Cr
45 000
Gain on revaluation - OCI
Income tax expense – OCI
Asset revaluation surplus
Dr
Cr
Cr
150 000
45 000
45 000
45 000
45 000
45 000
105 000
16.
Speculator Limited acquired a parcel of land for $50 000. This amount is also the tax base of the land.
Two years after acquisition date the building was revalued to $80 000. The tax rate is 30%. The
appropriate journal entry to recognise the net effect of the revaluation is:
a.
DR
Gain on revaluation - OCI
$30 000
CR
Asset revaluation surplus
$30 000
b.
*c.
d.
DR
DR
CR
Land $21 000
Income tax expense - OCI
Asset revaluation surplus
DR
CR
CR
Land $30 000
Deferred tax liability
Asset revaluation surplus
DR
CR
CR
Gain on revaluation - OCI
Income tax expense - OCI
Asset revaluation surplus
$ 9 000
$30 000
$ 9 000
$21 000
$30 000
$9 000
$21 000
17.
Troubadour Limited had an existing revaluation surplus in respect to an item of Plant that had been
derecognised. An appropriate journal entry to transfer the surplus to retained earnings would include:
a.
DR
Gain on revaluation - OCI
b.
CR
Asset revaluation surplus
c.
DR
Retained earnings
*d.
CR
Retained earnings.
18.
When using the revaluation model:
a.
ongoing record keeping costs are generally lower than if the cost model were used.
*b.
the values reported will provide more relevant information to users of the financial
statements.
c.
depreciation costs will generally be lower than under the cost model.
d.
the entities financial statements will be consistent with US GAAP requirements.
19.
When an asset is sold the resulting gain or loss is:
a.
reported in other comprehensive income, normally with separate disclosure of income and
the carrying amount of the asset
b.
reported in other comprehensive income, normally on a net basis
c.
reported in current period profit or loss, normally with separate disclosure of income and the
carrying amount of the asset
*d.
reported in current period profit or loss, normally on a net basis
20.
Which of the following statements is NOT correct in relation to disclosure of property, plant &
equipment balances?
a.
Paragraph 79 of IAS 16 contains disclosure that are encouraged, but not required in relation
to property, plant & equipment.
b.
An entity must disclose the useful life estimates for each class of assets.
c.
A summary of movements in the revaluation surplus is required to be disclosed.
*d.
Information on assets carried at revalued amounts must be disclosed on an individual asset
basis.
21.
IAS 16 requires disclosure, for each class of property, plant and equipment:
a.
the measurement bases used for determining the gross carrying amount
b.
the deprecation methods used
c.
the useful lives or the depreciation rates used
*d.
all of the options are correct.
22.
The cost of an item of property, plant and equipment is only recognised if the cost of
the item can
be reliably measured and if:
a.
it is not directly attributable to the asset;
b.
it has been paid for in cash;
c.
the item has been received by the acquirer;
*d.
it is probable that future economic benefits associated with the item will flow to the entity.
23.
An entity acquired an item of Plant in exchange for an item of Equipment. The Equipment has a
carrying value of $5000 and a fair value of $6000. The journal entry to record the acquisition of the
Plant will show:
a.
a loss on acquisition of $1000;
b.
proceeds on sale of Equipment of $1000;
*c.
a gain on sale of $1000;
d.
proceeds on sale of Plant of $1000.
24.
For the purposes of recognising a non-current property, plant and equipment asset the
acquisition date is determined as the date:
a.
the contract to exchange assets is signed;
b.
on which the offer to acquire the asset becomes unconditional
c.
the consideration is paid;
*d.
on which the acquirer obtains control of the asset.
25.
Subsequent to the initial recognition of an asset an entity has a choice on the measurement basis
to be adopted. The choice is between:
a.
cash and accrual;
*b.
cost and revaluation;
c.
tax and accounting;
d.
current and non-current.
26.
When applying a revaluation measurement model to assets, the model:
*a.
applies to the entire class of non-current assets;
b.
may only be applied to current assets;
c.
is applied permanently and may not be changed;
d.
is applied to individual assets within a class of non-current assets.
27.
Depreciation is a process that is designed to:
a.
reduce the carrying amount of an asset to reflect the diminishing fair value of the asset;
b.
spread the cost of an asset across a period no greater than 5 years;
c.
reflect the change in value of an asset as a result of obsolescence;
*d.
allocate the cost of an asset across its useful life to an entity.
28.
Under IAS 16, the depreciation charge for a period reflects:
a.
the fall in the fair value of the asset across the period;
b.
a change in the re-sale value of the asset that has occurred over the period;
*c.
the consumption of economic benefits over the period;
d.
a reduction in the estimated market value of the asset across the period.
29.
Which of the following is an argument to support the use of the revaluation model of accounting
for property, plant & equipment?
a.
the revaluation model is consistent with US GAAP
b.
the revaluation model can be selectively applied to individual assets
c.
the ongoing costs associated with applying the revaluation model provide a disincentive
to applying the model
*d.
the revaluation model provides more relevant and reliable information than the cost model
30.
ABC Limited acquired an item of plant on 1 July 2012 for $80 000. The estimated
useful life of
the plant at acquisition date was 5 years and the residual value $5000.
The company sold the plant
on 1 January 2016 for $30 000. The journal entry to reflect the sale is:
a.
DR Cash
$30000
DR Accumulated depreciation
$56 000
CR Plant
$80 000
CR Gain on sale
$ 6 000
b.
DR Cash
$30 000
CR Proceeds on sale
$30 000
DR Carrying amount of plant
$27500
c.
*d.
CR Plant
DR Cash
DR Loss on sale
CR Plant
DR Cash
DR Accumulated depreciation
CR Plant
CR Gain on sale
$27 500
$30000
$ 2 500
$32 500
$30 000
$52 500
$80000
$ 2 500
5. Intangible assets
Ch. 13
1.
Which of the following assets is regarded as meeting the identifiability criteria for recognition as an
identifiable intangible asset that can be recorded as acquired in a business combination?
a.
customer base
*b.
royalty agreements
c.
ongoing recruitment programs
d.
strong and favourable employee relations.
2.
For an asset to be classified as an identifiable intangible, IAS 38 Intangibles requires that it meet which
of the following criteria?
I.
It arises from a contractual or legal right.
II.
Its fair value must be able to be reliably measured.
III.
It is separable from the entity.
IV.
Its cost must reliably measurable.
a.
I or IV only
b.
I or II only
c.
II or III only
*d.
I or III only.
3.
A key characteristic that separates assets such as property, plant and equipment from intangible assets
is:
a.
separability
b.
length of useful life
*c.
lack of physical substance
d.
reliability.
4. The two key characteristics of intangible assets are that they are identifiable and that they:
a.
have physical substance
b.
are monetary assets
c.
represent current obligations of the entity
*d.
lack physical substance
5.
6.
7.
The characteristic that distinguishes the goodwill from other intangible assets is:
*a.
identifiability
b.
its nature as a monetary asset
c.
that is has a physical embodiment
d.
it can be separated from the entity and sold individually.
Under IAS 38 Intangibles, goodwill may only be recognised as an asset if it:
a.
arises as a result of creating new assets within the normal business operations
b.
does not exceed its internally recorded cost
c.
is internally generated
*d.
is acquired as part of a business combination.
The measurement of fair value is determined in accordance with IFRS 13 Fair Value
Measurement. IFRS 13 defines fair value as one that has all of the following conditions:
-The price that would be received to sell an asset or
paid to transfer a liability
-Is an orderly transaction between market participants
-Based on the measurement date.
Yes
a.
b.
c.
*d.
I
II
III
IV.
I
II
III
IV
Yes
No
No
Yes
Yes
Yes
No
No
Yes
Yes
Yes
8.
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?
*a.
The fair value of the asset given up.
b.
The initial cost of the asset given up.
c.
The carrying amount of the asset received.
d.
The replacement cost of the asset received.
9.
Which of the following assets is regarded as meeting the identifiability criteria for recognition as an
identifiable intangible asset that may be acquired in a business combination?
a.
customer service capability
*b.
newspaper mastheads
c.
favourable government relations
d.
presence in geographic locations.
10.
Paragraph 63 of IAS 38 Intangibles, prohibits the recognition of the following internally generated
identifiable intangibles:
Brands
Mastheads
Publishing titles
Customer lists
a.
b.
c.
*d.
11.
I
II
III
IV
No
No
No
No
No
Yes
No
Yes
No
Yes
Yes
No
Yes
Yes
Yes
Yes
I
II
III
IV.
Unless acquired under a business combination, intangible assets must be initially measured using
which of the following measurement approaches?
a.
discounted cash flows
b.
fair value
c.
net present value
*d.
cost.
12.
According to the definition provided in IAS 38 Intangibles, activities undertaken in the ‘research’
phase of the generation of an asset may include:
a.
the application of knowledge to a design for the production of new materials
*b.
original and planned investigation with the prospect of gaining new scientific knowledge
c.
the use of research findings to create a substantially improved product
d.
using knowledge to materially improve a manufacturing device.
13.
Wojtowicz Limited was involved in a mining exploration business. It commenced a project to design
more efficient gold detecting equipment. The following expenditures occurred during the financial
year ended 2013: Researcher’s salary $5000 Research consumables $3000 Re-development of the
detecting equipment $4000 Final adjustments to the detecting equipment $2500. The amount to be
capitalised by this company as an intangible asset, for the 2013 financial year, is:
*a.
$6500
b.
$8000
c. $11 500
d.
$14 500.
14.
Parsons Limited was involved in a highly successful plastics manufacturing business. It commenced a
project to design a more efficient extrusion system for its plastic pipes. The following outlays occurred:
January Research salaries $50 000 February Research materials $30 000 March re-development of the
extrusion plant $400 000 April Final adjustments to the extrusion plant $25 000. The amount to be
expensed by this company at the end of the financial year, 30 June, is:
a.
$30 000
b.
$50 000
*c.
$80 000
d.
$480 000.
15.
IAS 38 Intangibles, requires that an intangible asset with a finite life:
*a.
be amortised across its useful life
b.
be amortised across a period of no greater than 20 years
c.
not be amortised in periods when it is been properly maintained
d.
not be subject to amortisation charges.
16.
Under IAS 38 Intangibles, an intangible asset with an indefinite useful life is:
a.
not able to be recognised by an entity as an asset
*b.
not subject to annual amortisation charges
c.
amortised using the straight-line method over a period of no more than 20 years
d.
amortised using the reducing balance method over a period not exceeding 5 years.
17.
Which of the following statements is NOT correct?
a.
intangible assets are to be derecognised when there are no expected future benefits from the
asset
b.
amortisation of an intangible with a finite useful life does not cease when the asset becomes
temporarily idle.
*c.
amortisation of an intangible with an indefinite life does not cease when the asset is retired
from active use.
d.
gains or losses on disposal are calculated as the difference between the proceeds on disposal
and the carrying amount at point of sale, with amortisation calculated up to the point of sale
18.
IAS 38 Intangibles, requires that the following items in relation to intangibles, each be disclosed
separately:
a.
the opening balance of each intangible
b.
the closing balance of each intangible
*c.
any impairment losses reversed in profit or loss during the period
d.
all amounts of intangibles acquired during the period.
19.
Which of the following is a technique proposed by the Initial Accounting for Internally Generated
Intangible Assets Discussion Paper to account for internally generated intangibles?
a.
hypothetical future value method
b.
substituted fair value method
*c.
planned versus unplanned method
d.
expected benefit method
20.
The Chartered
Institute of Management Accountants (CIMA) has divided intangible resources into
three components. Which is NOT one of these components?
a.
human capital
b.
structural capital
*c.
financial capital
d.
relational capital
21.
Items such as market knowledge, effective advertising programs, fundraising capabilities
trained staff are NOT regarded as assets because they:
a.
are monetary items
b.
cannot be measured
*c.
are not controlled by the entity
d.
are too difficult to manage
22.
The recognition criteria that an asset must meet before it may be recognised and
in the financial statements include:
a.
that the recognition of the asset is relevant to user decision making;
*b.
probability that future economic benefits will flow to the entity;
c.
that the information about the asset is neutral;
d.
a likelihood that the cost of the asset is verifiable.
23.
and
presented
The cost of an intangible asset is comprised of the fair value of the consideration:
a.
less legal costs incurred in the purchase
*b.
plus directly attributable costs
c.
plus indirect costs
d.
less directly attributable costs
24.
The original and planned investigation undertaken with the prospect of gaining new
is described as:
a.
exploration
b.
development
c.
investigation
*d.
research
knowledge
25.
Under the revaluation method of measuring an intangible, the asset is carried at fair
subject to charges for:
*a.
amortisation and impairment
b.
inflation in value
c.
interest expense
d.
increment in value
value
and
26.
When subsequent expenditure on intangible assets occurs the costs are:
a.
recognised directly in retained earnings account
*b.
immediately expensed
c.
transferred to a revaluation reserve account
d.
capitalised
27
Which of the following statements is NOT correct?
a.
intangible assets are to be derecognised on disposal
*b.
amortisation of an intangible with a finite useful life ceases when the asset becomes
temporarily idle
c.
intangible assets are to be derecognised when there are no expected future benefits from the
asset
d.
gains or losses on disposal are calculated as the difference between the proceeds on disposal
and the carrying amount at point of sale, with amortisation calculated up to the point of sale
28.
Which of the following statements is correct?
a.
IAS 38 requires disclosures about an entity’s intangible assets, with disclosures being made on
an asset by asset basis
b.
Disclosures about the useful lives of intangibles are required with explanations being required
where assets are assessed to have finite useful lives
c.
Where the cost model is used, specific disclosures are required including assumptions made
on estimating fair values
*d.
Separate disclosures are required for internally generated intangibles
29.
Which of the following is NOT a technique proposed by the Initial Accounting for
Internally
Generated Intangible Assets Discussion Paper to account for internally
generated intangibles?
a.
the use of a hypothetical business combination
b.
the planned versus unplanned method
c.
the use of indicators
*d.
the use of a substituted fair value
30.
The Chartered Institute of Management Accountants (CIMA) divided intangible
into three components comprising:
a.
human capital
b.
relational capital
c.
structural capital
*d. all of the options are correct
resources
6. Impairment of assets
1.
Under IAS 36 Impairment of Assets, the following assets are subject to impairment testing:
Inventory
Assets arising from construction contracts
Assets arising from employee benefits
Property, plant and equipment
a.
b.
*c.
d.
2.
Ch. 15
Yes
I
Yes
Yes
No
No
II
Yes
No
Yes
Yes
III
No
No
No
Yes
IV
No
Yes
No
I
II
III
IV.
Which of the following assets need to be tested for impairment every year?
I
intangible assets with indefinite useful lives
II
intangible assets not yet available for use
III
intangible assets accounted for under the revaluation method
IV
goodwill acquired in a business combination
a. I, II and III only
b. II, III and IV only
*c. I, II and IV only
d. I, III and IV only
3.
When goodwill is acquired under a business combination it is subject to an impairment test every:
*a.
year
b.
two years
c.
three years
d.
five years.
4.
An impairment loss occurs when:
a.
the recoverable amount of an asset exceeds the carrying amount
*b.
the carrying amount of an asset exceeds the recoverable amount
c.
the asset has a zero residual value
d.
the recoverable amount of an asset exceeds its initial cost.
5.
According to IAS 36 Impairment of Assets, the recoverable amount test requires an entity to
compare the fair value an asset less costs to sell, with:
a.
the amount obtainable from the sale of the asset
b.
the costs directly attributable to the liquidation of the asset
c.
its disposal value
*d.
its value in use.
6.
Nguyen Limited estimated that it would receive future cash flows from the use of equipment:
End of Year 1 $10 000
End of Year 2 $50 000
End of Year 3 $20 000
The discount rate was determined as 8%. The ‘value in use’ of the equipment is:
a.
$80 000
b.
$73 600
*c.
$68 000
d.
$63 500.
7.
8.
Candy Limited expected future cash flows from the use of Equipment as follows: End of Year 1 $4000;
End of Year 2 $5000; End of Year 3 $2000. The discount rate was determined as 5%. The value in use
of the equipment is:
*a.
$10 073
b.
$10 576
c.
$11 000
d.
$11 550.
Where an asset is measured using the cost model, any impairment loss is:
a.
accumulated in a separate ‘accumulated impairment losses’ account
b.
set off against the balance of revenue
c.
taken directly to equity
*d.
added to the balance of the accumulated depreciation account.
9.
An appropriate journal entry to recognise an impairment loss under the cost model is:
a.
DR
Accumulated impairment losses
CR
Impairment loss
b.
DR
Accumulated impairment losses
CR
Asset revaluation (Equity)
*c.
DR
Impairment loss
CR
Accumulated depreciation & impairment losses
d.
DR
Revenue
CR
Impairment loss
10.
Under IAS 36 Impairment of Assets, impairment of an asset, and the accounting treatment using the
cost model, are as follows:
Impairment
Carrying amount of an asset is less than
its recoverable amount
Accounting treatment
Asset is written up to its recoverable amount
b.
Carrying amount of an asset is less than
its recoverable amount
No change to the asset value
*c.
Carrying amount of an asset is greater
than its recoverable amount
Asset is written down to its recoverable amount
d.
Carrying amount of an asset is greater
than its recoverable amount
No change to the asset value
a.
11.
When an asset is measured using the revaluation model, any impairment loss is treated as:
*a.
a revaluation decrement
b.
a revaluation increment
c.
a set-off against depreciation expense
d.
an addition to depreciation expense.
12.
In allocating an impairment loss, an entity shall not reduce the carrying amount of an asset below the
highest of:
*a.
value in use and zero
b.
present value and value in use
c.
cost and market value
d.
initial cost and fair value.
13.
Hayfield Limited recognised an impairment loss of $200 against a cash-generating unit containing the
following assets: Buildings $500; Roads $300; Equipment $600. The net carrying amount of the Roads
after allocation of the impairment loss is:
a.
$100
b.
$235
*c.
$257.
d.
$300
14.
At reporting date Guilder Limited estimated an impairment loss of $50 000 against its single cashgenerating unit. The company had the following assets: Headquarters Building $100 000; Plant $60
000; Equipment $40 000. The net carrying amount of the Plant after allocation of the impairment loss
is:
a.
$60 000
*b.
$45 000
c.
$35 000
d.
$10 000.
15.
Jam Pty Ltd has two cash generating units. CGU A had a carrying amount of $700 and value in use of
$750. CGU B has a carrying amount of $900 and a value in use of $800. The carrying amount of the
head office assets is $400. CGU A & B utilise the head office services equally. The impairment loss for
CGU A is:
a.
$0
b.
$50
*c.
$150
d.
$350
16.
At reporting date, the carrying amount of a cash-generating unit was considered to be have been
impaired by $800. The unit included the following assets: Land $4000; Plant $3000; Goodwill $1000.
The carrying amount of Goodwill after the impairment loss is allocated is:
a.
$0
*b.
$200
c.
$900
d.
$1000.
17.
At reporting date, the carrying amount of a cash-generating unit was considered to be have been
impaired by $900. The unit included the following assets: Land $4000; Plant $3000; Goodwill $500.
The amount of impairment allocated to the land is:
a.
$200
*b.
$229
c.
$300
d.
$514
18.
When assessing the recoverable of assets that have previously been subject to an impairment loss,
which of the following indicators assist in providing external evidence that an impairment loss has
reversed:
a.
the asset’s market value has decreased significantly during the period
b.
significant changes with an adverse effect on the entity have taken place
*c.
market interest rates have decreased during the period
d.
internal reporting sources indicate that the economic performance of the asset will not be as
good as expected.
19.
During 2013 Sacco Limited, estimated that the carrying amount of goodwill was impaired and wrote it
down by $50 000. In 2014, the company reassessed goodwill was decided that the old acquired
goodwill still existed. The appropriate accounting treatment in 2014 is:
a.
reverse the previous goodwill impairment loss
b.
recognise the revalued amount of goodwill by an adjustment against the asset revaluation
surplus account
*c.
ignore the reversal as it is prohibited by IAS 36 Impairment of Assets
d.
increase goodwill by an adjustment to retained earnings.
20.
In relation to the impairment of assets, IAS 36 Impairment of Assets, requires the following disclosures
for each class of assets:
I
The line of the statement of profit or loss and other comprehensive income in which impairment
losses are included.
II
The amount of reversals of impairment losses during the period.
III
The amount of impairment losses recognised directly in other comprehensive income.
IV
The beginning and ending balances of any ‘provision for impairment’ account.
*a.
b.
c.
d.
I, II, III and IV
I, II and III only
II and IV only
IV only.
21.
If an entity does not expect to recover the carrying amount of an asset, the entity has incurred:
*a.
an impairment loss
b.
a depreciation expense
c.
an amortisation cost
d.
a loss on disposal
22.
The impairment test must be applied to tangible assets:
a.
at each balance date
b.
every three years
c.
at each reporting date including interim reporting dates such as half-year
*d.
only if there is an indication that the asset may be impaired
23.
When evaluating whether an asset has been impaired, the carrying amount of the asset
must be compared to recoverable amount. Recoverable amount is the higher of:
a.
initial cost: and, fair value;
*b.
fair value less costs to sell: and, value in use;
c.
original cost: and, net present value;
d.
value in use: and, original cost.
24.
Value in use is:
a.
amount obtainable from disposal of an asset excluding any selling costs
b.
initial cost of an asset less any expected disposal costs
c.
incremental costs directly attributable to disposal of an asset
*d.
the present value of future cash flows expected to be derived from an asset
25.
Constructor Limited estimated an impairment loss of $500 against its single cashgenerating
unit. The company had the following assets: Headquarters Building $1000; Construction Plant $600;
Equipment $400. The net carrying amount of the Equipment
after allocation of the impairment loss
is:
a.
$200
b.
$400
*c.
$300
d.
$0
26.
Under IAS 36, the impairment testing of goodwill occurs at the:
a.
level of the entity itself
b.
combined segments level
c.
operating division level
*d.
lowest level at which goodwill is allocated to cash-generating units
27.
The carrying amount of a cash-generating unit was considered to be impaired. The
impairment
loss was $600. The cash-generating unit included the following assets:
Goodwill $1000; Buildings
$2000; Plant & Equipment $1500. The carrying amount of Goodwill after allocation of the impairment loss
is:
a.
b.
c.
*d.
28.
$0
$867
$600
$400
The impairment test for goodwill must be conducted:
a.
annually, at balance date
b.
once every three years at balance date
c.
only if it is reasonable to expect that goodwill has been impaired
*d.
annually, at the same time every year
29.
Which of the following is NOT correct in relation to the reversal of an impairment loss of
an
individual asset?
a.
When reversing an impairment loss the carrying amount cannot be increased to an amount in
excess of the carrying amount that would have been determined had no impairment loss been
recognised.
b.
For a depreciable asset there needs to be a calculation of carrying amount using the
depreciation variables applied before the impairment loss to determine what the carrying
amount would have been if there had been no impairment loss.
c.
If the individual asset is recorded under the cost model, then the increase in the carrying
amount is recognised immediately in profit or loss:
*d.
Where the recoverable amount is less than the carrying amount of an individual asset, the
reversal of a previous impairment loss requires adjusting the carrying amount of the asset to
recoverable amount.
30.
Which of the following is required to be disclosed for each class of assets?
I
the amount of impairment losses recognised in profit or loss during the period
II
the amount of reversals of impairment losses recognised in profit or loss during the period
III
the amount of impairment losses on revalued assets recognised directly in equity during
the period; and
IV
the amount of reversals of impairment losses on revalued assets recognised directly in
other comprehensive income during the period.
a.
III and IV only
*b.
I, II, III and IV
c.
I, II and III only
d.
I and II only
7. Leases
Ch. 12
1.
Which of the following is included within the scope of IAS 17?
a.
lease agreements for motion picture films
b.
lease agreements to explore for minerals
c.
lease agreements for biological assets
*d.
lease agreement for an oil refinery
2.
Which of the following is NOT an example of a risk of ownership of an asset?
a.
idle capacity
*b.
gains on the eventual sale of the asset
c.
uninsured damage
d.
technical obsolescence
3.
Which of the following is NOT one of the situations provided in IAS 17 in relation to the classification
of leases as finance leases?
a.
b.
*c.
d.
4.
Losses from the fluctuation of the fair value of the residual accrue to the
lessee
Leased assets are of a specialised nature
The lessee has provided a guarantee that they will acquire the asset at the
lease term
The lease is for a major part of the economic life of the asset.
IAS 17 deems cancellable leases with which of the following characteristics to be non-cancellable:
Leases that can be cancelled upon the occurrence of some
remote contingency
Leases that can be cancelled only with the permission of the
lessor
Leases where the lessee, upon cancellation, is committed to
enter into a further lease with the same lessor
Leases that require the lessee to pay a substantial penalty on
cancellation
a.
b.
*c.
d.
5.
end of the
I
No
II
Yes
III
Yes
IV
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
No
I
II
III
IV.
Which of the following statements is incorrect?
a.
The capitalisation of a leased asset increases the value of reported non-current assets and
reduces the return on assets ratio.
*b.
Recognition of the present value of future lease payments as a liability increases reported
current and non-current liabilities. This favourably affects debt–equity ratios and liquidity–
solvency ratios.
c.
Depreciation and interest expenses on finance leases may exceed rental payments and result
in lower profits being reported in the early years of the lease.
d.
More onerous disclosure requirements are prescribed for finance leases than for operating
leases.
6.
Interpretation 4 Determining Whether an Arrangement Contains a Lease provides that the following
arrangements which are NOT in the legal form of a lease may in fact fall within the definition of a lease
for accounting purposes:
I




Outsourcing arrangements
Non-cancellable service agreements
Contingent rental arrangements
Take-or-pay contracts
a.
b.
c.
*d.
7.
No
Yes
Yes
Yes
No
II
III
IV
Yes
No
Yes
Yes
No
Yes
No
Yes
Yes
No
No
I
II
III
IV.
According to IAS 17 Leases, because lease payments are made over the lease term, the payments made
under a finance lease must be divided into the following components:
I




Reduction of the lease liability
Interest expense incurred
Reimbursement of lessor costs
Receipt of lease incentives
*a.
b.
c.
d.
Yes
Yes
Yes
Yes
Yes
No
II
III
No
No
Yes
No
Yes
Yes
No
Yes
IV
No
Yes
I
II
III
IV.
The following information relates to questions 8-10
Adam Limited and Davies Limited enter into a finance lease agreement with the following terms:





lease term is 3 years
estimated economic life of the leased asset is 6 years
3 × annual rental payments of $23 000 each payment is one year in arrears
residual value at the end of the lease term is not guaranteed by the lessee
interest rate implicit in the lease is 7%
8.
On inception date, the present value of the minimum lease payments is:
*a.
$60 359
b.
$64 170
c.
$64 584
d.
$69 000
9.
The period over which the asset should be depreciated by the lessee is:
a.
3 years
b.
6 years
c.
the rate as determined by the Commissioner of Taxation
*d.
cannot be determined from the information provided
10.
The journal entry recorded by the lessee when the payment is made at the end of the first year is:
*a.
Dr
Interest expense
4 225
Dr
Lease liability
18 775
Cr
Cash
23 000
b.
Dr
Dr
Cr
Lease liability
Interest expense
Cash
4 225
18 775
23 000
c.
Dr
Dr
Cr
Interest expense
Lease liability
Cash
1 610
21 390
23 000
d.
Dr
Dr
Cr
Lease liability
Interest expense
Cash
1 610
21 390
23 000
11.
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.
*a.
I, II and IV only
b.
I, III and IV only
c.
II, III and IV only
d.
II and IV only.
12.
On 30 June 2013, Mala Ltd leased a vehicle to Tango Ltd. Mala Ltd had purchased the vehicle on that
day for its fair value of $89 721. The lease agreement cost Mala Ltd
$1457 to have drawn up and requires Tango to reimburse Mala for annual insurance costs of $1050.
The amount recorded as a lease receivable by Mala Ltd at the inception of the lease is:
a. $88 264
b. $89 721
c. $90 771
*d. $91 178
13.
Nelson Ltd manufactures specialised machinery for both sale and lease. On 1 July
2013, Nelson leased a machine to Poggi Ltd. The machine cost Nelson Ltd
$195 000 to manufacture, and its fair value at the inception of the lease was
$212 515. The interest rate implicit in the lease is 10%, which is in line with current market rates.
Under the terms of the lease, Poggi Ltd has guaranteed $25 000 of the asset’s expected residual
value of $37 000 at the end of the 5-year lease term. The debit to the sales revenue account in
Nelson’s books is:
a.
$187 548
b.
$195 000
*c.
$205 063
d.
$212 515
14.
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.
15.
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
*b.
I, III and IV only
c.
II and III only
d.
I, II and IV only.
16.
A lessee when accounting for a lease incentive received under an operating lease treats is as a:
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
17.
Burgess Limited accepts a lease incentive to enter into a 3-year operating lease for a building. The
incentive is a cash amount of $5000 received on signing of the lease agreement. The lessee initially records
this transaction as follows:
a.
DR
Lease expense
$5000
CR
Cash
$5000
b.
DR
Incentive from lessor
CR
Cash
$5000
$5000
c.
DR
Incentive to lessee
CR
Rent income
$5000
DR
Cash
CR
Lease incentive from lessor
$5000.
$5000
*d.
18.
Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment. The
incentive is cash amounting to $10 000 that will be paid on the date the lease agreement is signed. On
inception of the lease, the lessor will record:
a.
DR
Cash
$10 000
CR
Incentive to lessee
$10 000
*b.
c.
d.
19.
$5000
DR
CR
Incentive to lessee
Cash
$10 000
DR
CR
Rent income
Rent expense
$10 000
DR
CR
Cash
$10 000
Rent income
$10 000
$10 000
$10 000
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.
20.
The main concerns about the current accounting standard relating to leases include:
I
II
III
IV
a.
b.
c.
*d.
21.
22.
the:
the dividing line between finance and operating leases is hard to define in a principled way
obligations under cancellable operating leases are little different from borrowings, but are not
recognised as liabilities
assets used in the business that are held under operating leases are not shown on the
statement of financial position, thereby understating return on assets
leases are scoped out of the financial instruments standards, leading to inconsistencies
between leases and similar transactions
I and II
II and III
III and IV
I and IV
The user of a leased asset is referred to as the:
a.
vendor
b.
purchaser
c.
lessor
*d.
lessee
A finance lease is an agreement between an owner of an asset and a user of that asset wherein
a.
b.
c.
*d.
legal title to property is transferred to the lessee when the first lease payment is made
ownership passes to the lessor on inception date of the lease
substantially all of the risks and benefits of ownership remain with the lessor
usual risks and benefits of ownership are transferred to the user
23.
The minimum lease payment is defined as including all of the following components except:
a.
bargain purchase option
*b.
contingent rentals
c.
a guaranteed residual value
d.
the lease payments occurring over the lease term
24.
Which of the following statements is incorrect?
a.
More onerous disclosure requirements are prescribed for finance leases than operating leases.
b.
Depreciation and interest expenses on finance leases may exceed rental payments and result
in lower profits being reported in the early years of a finance lease.
*c.
The capitalisation of a leased asset increases the value of reported non-current assets and
increases the return on assets ratio.
d.
Depreciation and interest expenses relating to leases are not deductible for tax purposes, so
additional liabilities may have to be recognised under IAS 12 Income Taxes when these
expenses are less than the deduction for rental payments.
25.
Which of the following is an appropriate journal entry for the initial recognition by a
finance lease arrangement?
a.
DR
Leased asset:
CR
Bank loan
b.
DR
Cash:
CR
Leased asset
c.
DR
Lease liability: CR
Leased asset
*d.
DR
Leased asset:
CR
Lease liability
lessee of a
26.
Which of the following is an appropriate journal entry for the initial recognition by a
finance lease arrangement?
*a.
DR
Lease receivable: CR
Asset
b.
DR
Lease receivable: CR
Lease liability
c.
DR
Leased asset:
CR
Cash/Accounts payable
d.
DR
Leased asset:
CR
Cash
lessor of a
27.
Which of the following is an appropriate journal entry for the initial recognition by
an operating lease arrangement?
a.
DR
Leased asset:
CR Lease liability
*b.
DR
Lease rental expense:
CR Cash/Accounts payable
c.
DR
Leased asset:
CR Cash/Accounts payable
d.
DR
Lease asset:
CR Lease interest expense
28.
a lessee of
A sale and leaseback transaction involves the sale of an asset that is then leased back to the:
*a.
original owner
b.
acquiring entity
c.
lessor
d.
purchaser
29.
Which of the following is NOT a reason given by the IASB to remove the requirement to classify
leases from any future accounting standard?
a.
All leases give rise to a right to use the leased item that meets the definition of an asset; a
single conceptual model to account for all leases is preferable.
b.
The removal of classification would result in a simpler accounting standard.
*c.
Removing the classification may result in inconsistencies in how the minimum lease payments
are determined for classification purposes.
d.
Removal of classification would result in similar transactions being accounted for in the same
way.
30.
IAS 17 requires manufacturer and dealer lessors to recognise selling profit or loss at the:
a.
end of the lease
b.
systematically recognised over the lease term
*c.
commencement of the lease
d.
50% at commencement of the lease and 50% at the end of the lease
8. Provisions, contingent liabilities, and contingent assets
Ch. 5
1.
Provisions in relation to which of the following balances are within the scope of IAS 37?
*a.
warranties
b.
employee benefits
c.
financial instruments
d.
operating leases
2.
The uncertainty that exists in relation to provisions is one of
a.
timing
b.
amount
c.
timing and amount
*d.
timing or amount
3.
Which of the following is an example of a provision falling within the scope of IAS 37?
a.
accruals
*b.
onerous contracts
c.
employee benefits
d.
future operating losses
4.
An event that gives rise to a present obligation, but which cannot be measured with sufficient
reliability is an example of a:
a.
liability
b.
accrual
c.
provision
*d.
contingent liability
5.
Entity A has provided a bank guarantee to a bank in relation to a loan provided to entity B. Entity B
is solvent and shows no signs of defaulting on the loan. The treatment of the bank guarantee in the
records of entity A is to:
a.
recognise a liability
b.
recognise a provision
*c.
recognise a contingent liability
d.
do nothing
6.
Provisions shall be recognised when:
I
III
IV
an entity has a present obligation
it is possible that an outflow of resources will be required to settle the
obligation
the amount of the obligation can be reliably estimated
there has been a past event
a.
b.
*c.
d.
I, II and III
II, III and IV
I, III and IV
I, II and IV
II
7.
Liabilities which fail the recognition criteria and where the possibility of an outflow is remote should:
a.
be recognised as an accrual
b.
be recognised as a provision
c.
be recognised as a contingent liability
*d.
not be recognised in the financial statement at all
8.
JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations
would be as follows:
In 1 year $40 000
In 2 years $50 000
In 3 years $60 000.
A government rate for bonds with similar terms, is 6%. What is the present value of the total
expected future cash outflow?
*a.
$132 563;
b.
$140 510;
c.
$150 000;
d.
$159 000.
9.
According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, 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.
measured separately of the provision;
c.
recognised directly in equity in the period in which the cash inflows arose;
d.
recognised as a deferred asset.
10.
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 item under
IAS 37 Provisions, Contingent Liabilities and Contingent Assets, is to:
a.
disclose in the notes, 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.
11.
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.
12.
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;
b.
a deferred liability;
c.
a future operating loss;
d.
a present obligation.
13.
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.
set up a provision for the best estimate of all restructuring costs;
*c.
provide only for restructuring costs that are directly and necessarily caused by the
restructuring;
d.
provide for restructuring costs that are associated with the ongoing activities of the entity.
14.
Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the appropriate accounting
treatment for future operating losses is to:
a.
determine a reasonable estimate of the cost and provide for the future liability;
b.
determine the cost and charge it directly against retained earnings;
*c.
not recognise such items in the financial statements;
d.
measure on the basis of estimated future cash flows.
15.
The following statement, contained in IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
defines:
‘ a possible asset that arises from past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control
of the entity’
a.
b.
c.
*d.
a deferred liability;
a contingent liability;
a deferred asset;
a contingent asset.
16.
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.
do not recognise or disclose in the financial statements as the possibility of receiving damages
is remote;
b.
recognise as an asset in the financial statements as the receipt of damages is probable;
*c.
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;
d.
recognise as a deferred asset in the statement of financial position and re-classify as a noncurrent asset when the court decision is known.
17.
According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the appropriate
treatment for a contingent asset in the financial statements of an entity is:
*a.
disclosure of information in the notes, but do not recognise in the financial statements;
b.
recognition in the financial statements, and note disclosure;
c.
recognition in the financial statements, but no further disclosure in the notes;
d.
do not recognise in the financial statements, and do not disclose in the notes.
18.
In respect to a contingent liability, IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
requires disclosure of
a.
any increase in the contingent liability during the period;
*b.
an estimate of its financial effect;
c.
the carrying amount at the beginning and end of the period;
d.
an indication of the uncertainties about the amount or timing of expected
outflows.
19.
For each class of provision, an entity is required under IAS 37 Provisions, Contingent Liabilities and
Contingent Assets, to disclose the following information:
I The carrying amount at the beginning and end of the period.
II Amounts incurred and charged against the provision during the period.
III Comparative information.
IV Unused amounts reversed during the period.
V Additional provisions made during the period.
*a.
b.
c.
d.
20.
21.
22.
23.
I, II, IV and V only;
I, II, and III only;
II, III and IV only;
I, III, IV and V only.
The June 2005 Exposure Draft issued in relation to proposed changes to IAS 37:
a.
will be issued as a standard applicable for reporting periods ending on or after 1 June 2014
b.
has been withdrawn by the IASB
*c.
is still under consideration by the IASB
d.
is already applicable
Which of the following is not within the scope of IAS 37?
a.
The treatment of future operating losses
b.
The treatment of contingent assets
*c.
The treatment of restructuring provisions arising from a business
combination
d.
The treatment of onerous contracts
An example of where an entity has a present obligation is:
*a.
a public announcement made by an entity’s management to undertake
restructuring.
b.
a recommendation from the HR manager to the Board as to the level of bonuses to be paid at
year end.
c.
a historical pattern of performing a major overhaul of machinery every two
years.
d.
the declaration of a dividend by directors which is required to be ratified at a meeting of
shareholders
Which of the following statements is correct?
a.
A present obligation is an example of a legal obligation.
b.
A legal obligation is an example of a constructive obligation.
c.
A constructive obligation is an example of an equitable obligation.
*d.
An equitable obligation is an example of a present obligation.
24.
Which of the following statements is correct?
*a.
a provision is a class of liabilities
b.
a contingent liability is a class of liabilities
c.
a provision is a class of contingent liabilities
d.
contingent liabilities and provisions are classes of liabilities
25.
A contingent liability is defined as a:
possible obligation that arises from past events.
possible obligation whose existence will be
confirmed by the occurrence of an uncertain future
event.
*a.
b.
c.
d.
I
Yes
Yes
II
Yes
No
III
No
Yes
IV
No
No
I;
II;
III;
IV.
26.
Contingent liabilities are:
a.
recognised in the financial statements unless the possibility of an outflow in settlement is
remote.
*b.
recognised in the notes to the financial statements unless the possibility of an outflow in
settlement is remote.
c.
recognised in the notes to the financial statements because the possibility of an outflow in
settlement is remote.
d.
not recognised in the notes to the financial statements because the possibility of an outflow
in settlement is remote.
27.
An entity sells goods under warranty and past experience shows that minor defects account for 10%
of sales and major defects account for 2% of sales. If all minor defects were repaired the warranty
cost would be $300 000, and if all major defects were repaired the warranty cost would be $800 000.
The expected value of the warranty cost is:
a.
$0;
b.
$22 000;
*c.
$46 000;
d.
$86 000.
28.
The costs under an onerous contract are measured using which valuation method?
a.
the lower of cost or net market value;
*b.
the lower of the cost of fulfilling the contract and the penalties arising from failure to fulfil the
contract;
c.
the present value method using a risk-free discount rate;
d.
the unavoidable costs of meeting the obligations discounted by reference to market yields at
reporting date.
29.
Entities are not required to disclose which of the following in relation to provisions?
a.
carrying amounts of provisions at the beginning of the period
b.
amounts used during the period
c.
the effect of any change in the discount rate used
*d.
comparatives
30.
The June 2005 exposure draft issued in relation to IAS 37 proposed changes to:
I
II
III
IV
*a.
b.
c.
d.
the name of the standard
recognition and measurement criteria
the definition of contingencies
the method of disclosure for provisions
I, II and III
II, III and IV
I, III and IV
I, II and IV
9. Share-based payment
Ch. 8
1.
A share –based payment transaction in which the entity acquires goods or services by incurring
liabilities to the supplier for amounts that are based on the value of the entity’s shares or other
equity instruments of the entity is classified in IFRS 2 Share-based Payment as
a.
an equity-settled share-based payment transaction
*b.
a cash-settled share-based payment transaction
c.
a liability-settled share-based payment transaction
d.
an “other” share-based payment transaction
2.
Which of the following is NOT within the scope of IFRS 2 Share-based Payment.
*a.
Transactions in which the entity receives or acquires goods or services as part of the net
assets acquired in a business combination to which IFRS 3 Business Combinations applies.
b.
Equity instruments granted to employees of the acquiree in a business combination in
their capacity as an employee.
c.
Cancellation, replacement or other modification of share-based payment arrangements
because of a business combination.
d.
Cancellation, replacement or other modification of share-based payment arrangements
because of other equity restructuring.
3.
Which of the following is within the scope of IFRS 2 Share-based Payment.
a.
Transactions in which the entity receives or acquires goods or services as part of the net
assets acquired in a business combination to which IFRS 3 Business Combinations applies.
b.
Transaction in which the entity receives or acquired goods or services under a contract
which is within the scope of IFRS 139 Financial Instruments: Recognition & Measurement.
c.
Transactions with employees in the employee’s capacity as a holder of equity instruments
of the entity.
*d.
Cancellation, replacement or modification of share-based payments arising because of a
business combination or restructuring.
4.
Reload features are accounted for as follows:
a.
included in the fair value of the initial options granted at measurement date
*b.
separately from the initial options granted
c.
as a market condition
d.
as a modification to the initial terms and conditions of the initial options
granted
5.
Which of the following statements in relation to modifications to the terms and conditions on
which equity instruments were granted as part of an employee share scheme is correct?
a.
a reduction in the exercise price of options will reduce the fair value of the share options
b.
a reduction in a performance hurdle relating to profitability targets will reduce the fair
value of the options
*c.
a shortening of the vesting period will increase the fair value of the share
options.
d.
an increase in the number of equity instruments granted is not an example of a
modification
6.
On 1 July 2013 Pepper Limited granted 500 share options to each of its 100 employees. Each grant
is conditional on the employee working for the company for the next two years. The fair value of
each option is estimated to be $3.00. Pepper estimates that 8% of its employees will leave during
the two year period and therefore forfeit their rights to the share options.
During the year ended 30 June 2014 five employees left. At this time the company revised its
estimate of total employee departures over the full two-year period to 10%.
During the year ended 30 June 2015 a further 4 employees left.
The amount to be recognised as an expense by Pepper for the year ended 30 June
*a.
$67 500
b.
$69 000
c.
$71 250
d.
$135 000
7.
2014 is:
On 1 July 2013, Leo Limited granted 250 options to each of its 50 employees. The options are
conditional on the employees remaining with the company for the 2 year vesting period. The
options have a fair value of $10 at vesting date. In addition, the shares will vest as follows:
On 30 June 2014 if the company’s earnings have increased by more than
15%
On 30 June 2015 if the company’s earnings have increased by more than 12% averaged
across the 2 year period
At 30 June 2014 Leo’s earnings have increased by 12% and 3 employees have left.
The company expects that earnings will continue to increase at a similar rate during the year to 30
June 2015 and that the shares will vest at that time. It also expects that a further 4 employees will
leave during the year.
The remuneration expense for the year ended 30 June 2014 for Leo is:
a.
*b.
c.
d.
$35 833
$53 750
$58 750
$117 500
8.
On 1 July 2013 Diamond Ltd granted 800 share options with an exercise price of $35 to the CFO,
conditional on the CFO remaining in employment with the company until 30 June 2016. The
exercise price will drop to $30 if Diamond’s earnings increase by an average of 8% per year over
the three year period. On 1 July 2013 the estimated fair value of the share options with an
exercise price of $35 is $10 per option, and if the exercise price is $30, the estimated fair value of
the options is $12 per option.
During the year ended 30 June 2014 Diamond’s earnings increased by 10% and they are expected
to continue to increase at this rate over the next two years.
During the year ended 30 June 2015 Diamond’s earnings increased by 5% and Diamond
management expected that the earnings target would be achieved.
During the year ended 30 June 2016 Diamond’s earnings increased by 11%.
When calculating the remuneration expense to be recognised for the year ended 30 June 2015
which of the following dollar values should be included in the calculation?
*a.
$10
b.
$12
c.
$30
d.
$35
THE FOLLOWING INFORMATION RELATES TO QUESTIONS 9 and 10
On 1 July 2013 Fantasy Ltd granted 200 options to each of its 100 employees. The share options
will vest on 30 June 2015 if the employees remain employed with the company on that date. The
share options have a life of four years. The exercise price is $5, which is also Fantasy’s share price
at the grant date. Fantasy is unable to reliably estimate the fair value of the share options at the
grant date.
Fantasy’s share price and the number of options exercised are set out below. Share options may
only be exercised at year end.
Year ended
30 June 2014
30 June 2015
30 June 2016
30 June 2017
Share price at
year end
$6
$7
$8
$9
Number of options
exercised at year end
7 800
10 000
9.
The cumulative remuneration expense to be recognised by Fantasy as at 30 June
a.
$7800
b.
$17 800
*c.
$35 600
d.
$124 600
2015 is:
10.
The formula to calculate the remuneration expense for the year ended 30 June 2016
a.
7800 x ($8-$7)
b.
7800 x $8
c.
(7800 + 10 000) x ($8-$5)
*d.
(7800 + 10 000) x ($8-$7)
is:
11.
On 1 July 2014 Luca Ltd grants 200 options to each of its 75 employees conditional on the
employee remaining in service over the next two years. The fair value of each option is estimated
to be $7. Luca estimates that 8 employees will leave over the two year vesting period.
By 30 June 2015 four employees have left and the entity estimates that a further five employees
will leave over the next year.
On 30 June 2015 Luca decided to reprice its share options, due to a fall in its share price over the
last 12 months. The repriced share options will vest on 30 June 2016. At the date of repricing Luca
estimates that the fair value of each original option is $1.50 and the fair value of each repriced
option is $3.
During the year ended 30 June 2016 four employees left.
The remuneration expense for the year ended 30 June 2015 is:
*a.
$34 650
b.
$35 175
c.
$46 200
d.
$46 900
THE FOLLOWING INFORMATION RELATES TO QUESTIONS 12 - 14
On 1 July 2013 Watson Pty Ltd granted 100 share appreciation rights (SARS) to each of its 50
employees, conditional on the employee not leaving the company in the next three years. The
company estimates the fair value of the SARS at the end of each year in which a liability exists as
shown in the table below. The intrinsic values of the SARS at the date of exercise at 30 June 2016,
2017 and 2018 are also shown. All SARS held by employees at 30 June 2016 vest.
Year ended
30 June 2014
30 June 2015
30 June 2016
30 June 2017
30 June 2018
Fair value
$14.40
$15.50
$18.20
$21.40
Intrinsic value
$15.00
$20.00
$25.00
By 30 June 2016 nine employees have left and 15 employees have exercised their SARS.
12.
The amount recognised as an expense for the year ended 30 June 2016 is:
a.
$5987
b.
$22 500
*c.
$28 487
d.
$47 320
13.
The liability recorded at 30 June 2015 is:
a.
$19 680
b.
$21 653
*c.
$41 333
d.
$47 320
14.
This is an example of:
a.
an equity-settled share-based payment transaction
*b.
a cash-settled share-based payment transaction
c.
a share-based payment transaction where the counterparty has the settlement choice
c.
a share-based payment transaction where the entity has the settlement choice
15.
In a share based payment transaction where the entity has settlement choice:
a.
where a present obligation does not exist the entity has a choice of classification as an
equity or cash settled share based payment transaction.
*b.
the entity has a present obligation to settle in cash where it has a past practice or stated
policy of settling in cash
c.
the entity must settle in equity unless there is no commercial substance to the
transaction.
d.
if an entity elects to settle in cash the settlement is accounted for as an
expense.
THE FOLLOWING INFORMATION RELATES TO QUESTIONS 16-18
Viola Ltd has granted each of its 10 senior executives a choice between receiving a cash payment
equivalent to 1000 shares or receiving 1200 share. The grant is conditional on the completion of
three years’ service with the company. If the share alternative is chosen, the shares must be held
for two years after vesting date. At grant date the company’s share price is $25 per share. At the
end of years 1, 2 and 3 the share price is $27, $28 and $30 respectively. The company does not
expect to pay dividends in the next three years. After taking into account the effect of post-vesting
transfer restrictions the company estimates the grant-date fair value of the share alternative is $24
per share.
16.
What is the fair value of the cash alternative?
a.
$240 000
*b.
$250 000
c.
$288 000
d.
$300 000
17.
What is the fair value of the equity alternative?
a.
$240 000
b.
$250 000
*c.
$288 000
d.
$300 000
18.
What is the liability component at the end of year 1?
a.
$83 333
*b.
$90 000
c.
$100 000
d.
$108 000
19.
Which of the following statements in relation to disclosures required under IFRS 2 Share-based
Payment is NOT correct?
a.
For arrangements that were modified during the year, the incremental fair value granted
as a result.
b.
The weighted average price at the date of exercise for options exercised during the
period.
c.
A description of the plan, including the general terms and conditions, vesting
requirements, maximum term of options granted and method of settlement must be
disclosed.
*d.
for liabilities arising from share-based payment transactions, the total intrinsic value at
the end of the period for liabilities where the counter party’s right had not yet vested.
20.
A share–based payment transaction in which the entity receives goods or services as consideration
for equity instruments of the entity is classified in IFRS 2 Share-based Payment as
*a.
an equity-settled share-based payment transaction
b.
a cash-settled share-based payment transaction
c.
a liability-settled share-based payment transaction
d.
an “other” share-based payment transaction
21.
A share–based payment transaction in which the entity receives goods or services as consideration
for equity instruments of the entity is classified in IFRS 2 Share-based Payment as
*a.
an equity-settled share-based payment transaction
b.
a cash-settled share-based payment transaction
c.
a liability-settled share-based payment transaction
d.
an “other” share-based payment transaction
22.
Salt Limited grants 1000 share options to each of its 100 employees. Each grant is conditional on
the employee working for the company for the next two years. The fair value of each option is
estimated to be $5.00 at grant date and $7.50 at vesting date.
The amount to be recognised as an expense by Salt in year 2 is:
*a.
b.
c.
d.
23.
$250 000
$375 000
$500 000
$750 000
Pepper Limited grants 500 share options to each of its 30 employees. Each grant is conditional on
the employee working for the company for the next three years. The fair value of each option is
estimated to be $5.00 at grant date and $7.50 at vesting date.
The amount to be recognised as an expense by Pepper in year 2 is:
*a.
$25 000
b.
$37 500
c.
$50 000
d.
$75 000
24.
In situations where an option-pricing model is required to be used to determine the fair value of
equity instruments granted IFRS 2 Share-based Payment:
a.
requires expected dividends to be taken into account when measuring the shares or
options granted.
*b.
allows the entity to choose the option-pricing model it wishes to use, but contains a
number of factors that the option-pricing model selected must take into account as a
minimum.
c.
requires the use of a binominal option-pricing model.
d.
requires the use of the Black-Scholes-Merton formula.
25.
On 1 July 2013, Nelson Pty Ltd granted 250 options to each of its 50 employees. The options are
conditional on the employees remaining with the company for the 3 year vesting period. The
options have a fair value of $7.50 at vesting date. In addition, the shares will vest as follows:
On 30 June 2014 if the company’s earnings have increased by more than 12%
On 30 June 2015 if the company’s earnings have increased by more than 10% averaged across the
2 year period
On 30 June 2016 if the company’s earnings have increased by more than 8% averaged across the 3
year period
At 30 June 2014 Nelson’s earnings have increased by 11% and 3 employees have
left.
The company expects that earnings will continue to increase at a similar rate during the year to 30
June 2015 and that the shares will vest at that time. It also expects that a further 4 employees will
leave during the year.
The remuneration expense for the year ended 30 June 2014 for Nelson is:
a.
$26 875.00
b.
$29 375.00
*c.
$40 312.50
d.
$88 125.00
26.
On 1 July 2013 Pearl Pty Ltd granted 800 share options with an exercise price of $35 to the CFO,
conditional on the CFO remaining in employment with the company until 30 June 2016. The fair
value of Pearl’s shares at that time were assessed to be $40. The exercise price will drop to $30 if
Pearl’s earnings increase by an average of 8% per year over the three year period. On 1 July 2013
the estimated fair value of the share options with an exercise price of $35 is $10 per option, and if
the exercise price is $30, the estimated fair value of the options is $12 per option.
During the year ended 30 June 2014 Pearl’s earnings increased by 10% and they are expected to
continue to increase at this rate over the next two years.
During the year ended 30 June 2015 Pearl’s earnings increased by 9% and Pearl management
continued to expect that the earnings target would be achieved.
During the year ended 30 June 2016 Pearl’s earnings increased by only 2%. At 30 June 2016 the
share price is $23.
The remuneration expense to be recognised for the year ended 30 June 2014 is:
a.
*b.
c.
d.
$2667
$3200
$8000
$9600
27.
On 1 July 2013 Pearl Pty Ltd granted 800 share options with an exercise price of $35 to the CFO,
conditional on the CFO remaining in employment with the company until 30 June 2016. The fair
value of Pearl’s shares at that time were assessed to be $40. The exercise price will drop to $30 if
Pearl’s earnings increase by an average of 8% per year over the three year period. On 1 July 2013
the estimated fair value of the share options with an exercise price of $35 is $10 per option, and if
the exercise price is $30, the estimated fair value of the options is $12 per option.
During the year ended 30 June 2014 Pearl’s earnings increased by 10% and they are expected to
continue to increase at this rate over the next two years.
During the year ended 30 June 2015 Pearl’s earnings increased by 9% and Pearl management
continued to expect that the earnings target would be achieved.
During the year ended 30 June 2016 Pearl’s earnings increased by only 2%. At 30 June 2016 the
share price is $23.
Assuming that the CFO decides NOT to exercise his options at 30 June 2016, the following entry
would be recorded:
28.
a.
DR
b.
DR
c.
DR
*d.
DR
Wages expense
CR
Options issued (equity)
Options issued (equity)
CR
Lapsed options reserve
Options issued (equity)
CR
Retained earnings
Options issued (equity)
CR
Wages expense
In relation to equity instruments granted by an entity where the entity makes modifications to the
terms and conditions attaching to the grant:
a.
the incremental fair value is measured as the difference between the fair value of the
modified instrument, estimated at the date of modification and that of the original equity
instrument, estimated at the date of original granting.
b.
if the modification occurs during the vesting period the incremental fair value is
recognised immediately.
c.
terms or conditions may not be modified in a manner that is not beneficial to the
employee.
*d.
where the exercise price of options is modified, the fair value of the options
changes.
29.
On 1 July 2013 Poggio Ltd grants 300 options to each of its 100 employees conditional on the
employee remaining in service over the next three years. The fair value of each option is
estimated to be $12. Poggio estimates that 15 employees will leave over the three year vesting
period.
By 30 June 2014 four employees have left and the entity estimates that a further ten employees
will leave over the next two years.
On 30 June 2014 Poggio decided to reprice its share options, due to a fall in its share price over the
last 12 months. The repriced share options will vest on 30 June 2016. At the date of repricing
Poggio estimates that the fair value of each original option is $3 and the fair value of each repriced
option is $5.
During the year ended 30 June 2015 a further 6 employees leave and Poggio estimates that
another 3 employees will leave during the year ended 30 June 2016.
During the year ended 30 June 2016 four employees left.
The entry at 30 June 2015 to account for the share based payment transaction is:
30.
a.
DR
*b.
DR
c.
DR
d.
DR
Wages expense
CR
Liability to employee
Wages expense
CR
Options issued (equity)
Wages expense
CR
Share capital
Wages expense
CR
Cash
Which of the following statements in relation to disclosures required under IFRS 2 Share-based
Payment is not correct?
a.
Option pricing models used in valuing share options must be identified.
b.
The number and weighted average exercise price of share options outstanding at the
beginning and end of each period must be disclosed.
c.
Information about share-based payment arrangements that are substantially the same
may be aggregated.
*d.
The total expense arising from share-based payment transactions in which the services
qualified for recognition as an asset must be disclosed.
10. Employee benefits
Ch. 10
1.
Which of the following types of employee benefits are required to be measured at their nominal
value?
a.
long service leave
b.
defined benefit post-employment benefits
*c.
accumulating non-vesting sick leave
d.
defined contribution employment benefits
2.
Employee benefits can arise from which of the following?
I
II
III
IV
a.
b.
c.
*d.
workplace agreements between an entity and its employees
enterprise bargaining agreements between an entity and the relevant employee
union
government legislation
specific industry arrangements
I and II only
II, III and IV only
I, II and III only
I, II, III and IV
3.
IAS 19 defines employee benefits as:
a.
any cash consideration given by an entity to employees or their authorised representatives
in exchange for services rendered by the employee
b.
all forms of consideration given by an entity to employees or their authorised
representatives in exchange for services rendered by the employee
*c.
all forms of consideration given by an entity in exchange for service rendered by employees
d.
all forms of consideration given by an entity to employees or their authorised
representatives
4.
Which if the following is NOT an example of a short-term employee benefit?
a.
wages and salaries
*b.
termination payments
c.
bonuses and profit-sharing arrangements
d.
short-term compensated benefits
5.
Salary sacrificing refers to:
a.
an employer withholding a portion of an employee’s salary or wages for sub-standard
performance
b.
an employee not receiving a portion of their salary and wages due to the fact that predetermined performance targets have not been met
c.
an employee foregoing some of their salary because leave entitlements such as sick leave
have been exceeded
*d.
an employee electing to forego some of their salary or wages in return for other non-cash
benefits
6.
IAS 19 requires short-term employee benefits to be measured at:
a.
future value
*b.
nominal value
c.
present value
d.
fair value
7.
An entity is required to recognise a liability for short-term compensated absences that are:
*a.
accumulating and vesting
b.
non-accumulating and vesting
c.
non-accumulating and non-vesting
d.
all of the above
8.
Pirate Ltd employs 5 staff. Each staff member is entitled to 20 days annual leave per annum. Leave
loading of 17.5% is paid when the leave is taken. At 1 July 2013 the balance in the provision for
annual leave account was $20 303.
Details of each employees leave entitlement at 30 June 2014 are as follows:
Employee
Salary
Jo Bird
Bill Brown
Ben Fit
Greg Horn
Lou Hamilton
$65 000
$70 000
$85 000
$62 500
$90 000
Days owing
1/7/13
17
5
24
3
9
@
Days taken during
year
22
12
18
15
26
There are 260 work days in a year. On 1 July each year all employees receive a 5% wage rise. There
are no other wage rises given during the year.
The closing balance in the provision for annual leave account at 30 June 2014 is:
a.
$18 712
b.
$19 647
*c.
$23 086
d.
$27 221
9.
Pirate Ltd employs 5 staff. Each staff member is entitled to 20 days annual leave per annum. Leave
loading of 17.5% is paid when the leave is taken. At 1 July 2013 the balance in the provision for annual leave
account was $20 303.
Details of each employees leave entitlement at 30 June 2014 are as follows:
Employee
Salary
Jo Bird
Bill Brown
Ben Fit
Greg Horn
Lou Hamilton
$65 000
$70 000
$85 000
$62 500
$90 000
Days owing
1/7/13
17
5
24
3
9
@
Days taken during
year
22
12
18
15
26
There are 260 work days in a year. On 1 July each year all employees receive a 5% wage rise. There
are no other wage rises given during the year.
Annual leave payments made during the year were debited against the provision account. The total
debit against the annual leave account during the year in relation to leave taken was:
a.
$27 221
b.
$28 654
*c.
$33 585
d.
$33 668
10.
IAS 19 does NOT prescribe the accounting treatment for:
a.
contributions to defined contribution post-employment benefit funds
*b.
contributions received by a defined contribution post-employment benefit
fund
c.
assets arising from defined benefit post-employment benefit plans from the perspective of
the employer
d.
liabilities arising from defined benefit post-employment benefit plans from the perspective
of the employer
11.
The key difference between defined benefit and defined contributions post-employment plans is
that:
a.
the employee bears the risk in a defined benefit plan, whereas the employer bears the risk
in a defined contribution plan
b.
the fund bears the risk in a defined benefit plan, whereas the employee bears the risk in a
defined contribution plan
*c.
the employer bears the risk in a defined benefit plan, whereas the employee bears the risk
in a defined contribution plan
d.
the employer bears the risk in a defined benefit plan, whereas the fund bears the risk in a
defined contribution plan
12.
Benefits paid to members of a defined benefit post-employment fund are based on:
I
II
III
IV
a.
*b.
c.
d.
the level of employer contributions made to the fund
remuneration levels while employed
number of years service
investment returns generated by the fund
I and II only
II and III only
III and IV only
I and IV only
13.
An increase in the present value of a defined benefit obligation resulting from employee service in
the current period is referred to as:
*a.
the current service cost
b.
the past service cost
c.
the interest cost
d.
an actuarial gain or loss
14.
IAS 19 requires an entity to record a liability for long service leave:
a.
once the employee becomes presently entitled to the leave
*b.
as the employee provides service to the entity
c.
when the leave is taken by the employee
d.
in a consistent manner from year to year
15.
IAS 19 adopts which method to determining long service leave obligations?
a.
units of production method
b.
the actuarial method
c.
the bi-nominal method
*d.
projected unit credit method
16.
The offer to pay termination benefits can no longer be withdrawn when the entity has
communicated to affected employees a plan of termination that meets which of the following
criteria?
a.
b.
c.
*d.
actions required to complete the plan indicate that significant changes to the plan are
unlikely
the plan identifies the location, function or job classification, the number of
employees whose services are to be terminated, and the expected
completion date
the plan establishes the termination benefits payable in sufficient detail to
enable employees to determine the type and amount of benefits they will
receive
all of the above
17.
Which of the following do NOT fall within the definition of a termination benefit?
*a.
employee resignation
b.
voluntary redundancy accepted by an employee
c.
termination of employment before the normal retirement date due to company insolvency
d.
termination of employment before the normal retirement date due to poor performance
18.
Benefits paid to members of a defined contribution post-employment fund are based on:
I
II
III
IV
a.
b.
c.
*d.
19.
the level of contributions made to the fund
remuneration levels while employed
number of years service
investment returns generated by the fund
I and II only
II and III only
III and IV only
I and IV only
Actuarial gains or losses can arise from:
I
II
III
IV
a.
b.
*c.
d.
employee service provided in the current period
the unwinding of the discount applied to the obligation
changes to actuarial assumptions
experience adjustments
I and II
II and III
III and IV
I and IV
20.
Determining an entity’s liability for long service leave requires estimation of:
a.
when the leave will be taken
b.
projected salary levels
c.
proportion of employees who will become entitled to the leave
*d.
all of the above.
21.
An enterprise bargaining agreement results from an entity entering into an agreement with:
a.
its employees
b.
the government
c.
the relevant industry body
*d.
the relevant employee union
22.
a.
b.
*c.
d.
Employee benefits can be allocated to assets:
only if it relates to the cost of an internally generated intangible
where the entity is certain the future economic benefits will flow to it
in accordance with the requirements of other accounting standards
where they meet the definition of an asset under the Conceptual Framework
23.
If the amount paid to the defined contribution fund by an entity during the year is less than the
amount payable in relation to service provided by employees, the entity must recognise;
a.
an asset for the unpaid contributions
*b
a liability for the unpaid contributions
c.
an expense for the unpaid contributions
d.
a gain for the unpaid contributions
24.
The key steps involved in accounting by the employer for a defined benefit post-employment fund
in accordance with IAS 19 include:
a.
determining the deficit or surplus of the fund
b.
determining the amount of the net defined benefit liability (asset)
c
determining the amounts to be recognised in profit or loss for current service cost, any
past service cost and net interest expense (income) on the net defined benefit liability
(asset)
*d.
all of the options are correct
25.
The nominal value of an accumulated benefit for long service leave is calculated as (Years of
employment/Years required for LSL) x (weeks of paid leave/52) x ………..?
a.
current salaries
b.
projected salaries x (1+inflation rate)n
c.
current salaries / (1+inflation rate)n
*d.
projected salaries
26.
Which of the following obligations do NOT arise from past services provided by an employee?
a.
short-term compensated absences
*b.
termination benefits
c.
other long-term employee benefits
d.
post-employment benefits
27.
An entity is able to record a provision for termination benefits when it:
a.
has a detailed formal plan
b.
has a definite intention of terminating employment
c.
has received Board approval for the termination benefits
*d.
can no longer withdraw the offer of the benefits
28.
ABC Ltd employs 5 staff. Each staff member is entitled to 20 days annual leave per annum. Leave
loading of 17.5% is paid when the leave is taken.
On 31 December 2013 Joan Rivers left the company and was paid out her untaken leave
entitlements. Joan had 12 days leave owing at 1 July 2013 and took 4 days leave between 1 July
and 31 December 2013. Her salary at the time of her departure was
$140 000.
There are 260 work days in a year. On 1 July each year all employees receive a 3% wage rise.
There are no other wage rises given during the year.
The gross entitlement owing to Joan Rivers on 31 December 2013 was:
a.
b.
c.
*d.
29.
$17 715
$9692
$5061
$11 388
Carpenter Ltd has 6 employees, who are each paid $750 per week for a 5 day working week. Each
employee is entitled to 8 days accumulating non-vesting sick leave per year.
At 1 July 2013 the accumulated untaken leave was 14 days in total. During the year ended 30 June
2014 a total of 50 days sick leave was taken, of which 12 days were unpaid leave.
Of the accumulated untaken leave at 30 June 2014 it is estimated that 75% of it will be taken
during the following year.
The balance of the provision for sick leave at 30 June 2014 is:
a.
b.
*c.
d.
30.
$1350
$3600
$2700
NIL, as the leave is non-vesting
Which of the following types of employee benefits are required to be measured at the present
value of expected future cash flows?
a.
annual leave
b.
accumulating non-vesting sick leave
c.
maternity leave
*d.
long service leave