Question 1

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

Accepted Answer

Specific information on the size of a bad debt that had previously been considered doubtful is not a new event, as it relates to conditions that existed at the balance date.

Question 2

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

Accepted Answer

Accountants typically do not adjust financial statements or other financial information for changes in the value of the dollar. This is because the financial information is presented in historical dollars (the dollars used at the time the transaction occurred or the asset was acquired), and adjustments for changes in the value of the dollar could distort the accuracy of the information. However, if the impact of inflation is significant enough, companies may choose to present their financial statements in inflation-adjusted dollars or provide supplemental inflation-adjusted information.

Question 3

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

Accepted Answer

The conservatism principle justifies using the lower of cost or net realizable value for inventories to avoid overstating assets and income.

Question 4

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

Accepted Answer

Showing assets at current cost rather than at historical cost provides more relevant information to investors and other stakeholders, even though it may be less reliable than historical cost.

Question 5

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

Accepted Answer

Subsequent events that provide evidence about conditions that existed at the reporting date require adjustments to the figures in the financial statements to reflect the conditions accurately.

Question 6

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

Accepted Answer

Subsequent events that occur after the reporting date but before the financial statements are authorized for issue, and could influence decision making, must be disclosed in the notes to the financial statements according to AASB 110.

Question 7

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

Accepted Answer

The use of historical cost is based on the reliability principle, which requires that financial information must be accurate, complete, and verifiable. Historical cost provides a reliable basis for measuring assets and liabilities because it is based on actual transactions and can be objectively verified.

Question 8

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

Accepted Answer

All the options listed (current cost, historical cost, and selling price) are types of 'value' used in accounting and finance.

Question 9

The Australian Accounting Standard dealing with hyperinflation is:

Accepted Answer

AASB 129 is the Australian Accounting Standard that deals with financial reporting in hyperinflationary economies.

Question 10

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

Accepted Answer

AASB 101 requires the disclosure of interest on borrowings, comparative figures, and different categories of receivables in general purpose financial reports.

Quiz 17: The Framework of Accounting