Question 1

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

Accepted Answer

Profit is recognized at the point of sale in most businesses, which means that it is earned when the customer buys the product or service. This is also known as the revenue recognition principle, where revenue is recognized when it is earned, and not when the payment is received.

Question 2

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

Accepted Answer

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

Question 3

Which of the following is not a type of 'value'?
A)Current cost
B)Historical cost
C)Selling price
D)None of the above,i.e.all are types of 'value'

Accepted Answer

All options listed are types of value. Current cost refers to the cost of producing a product or service currently, historical cost is the cost of production that has already occurred, and selling price is the price at which a product or service is sold to customers.

Question 4

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

Accepted Answer

Revenue recognition refers to the process of recording revenue and reporting it in the financial statements, primarily the income statement. It is a crucial accounting concept for determining a company's financial health and profitability.

Question 5

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:
A)comparability principle.
B)cost versus benefit principle.
C)materiality principle.
D)conservatism principle.

Accepted Answer

The conservatism principle states that losses should be recognized as soon as possible but gains should only be recognized when they are assured or realized. Using the lower net realizable value of inventories rather than their historical cost is a conservative approach that recognizes potential losses and reduces the risk of overstating the value of assets.

Question 6

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

Accepted Answer

A change in the useful life of a fixed asset is considered a change in an accounting estimate, not a change in accounting policy, under AASB 108.

Question 7

The Australian Accounting Standard dealing with hyperinflation is:
A)AASB 101.
B)AASB 129.
C)AASB 2000.
D)There is no Australian accounting standard dealing with hyperinflation.

Accepted Answer

The correct accounting standard dealing with hyperinflation in Australia is AASB 129, "Financial Reporting in Hyperinflationary Economies". This standard provides specific guidance for entities operating in economies where hyperinflation exists, including requirements for restating financial statements to adjust for changes in the general price level.

Question 8

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:
A)must be referred to in a special mail-out to shareholders.
B)need not be accounted for.
C)must be disclosed in a footnote to the financial statements.
D)require adjustments to the figures in the financial statements.

Accepted Answer

According to AASB 110, subsequent events that could influence decision making must be disclosed in a footnote to the financial statements. They do not require adjustments to the figures in the financial statements, but they must be disclosed to provide users with relevant and reliable information. A special mail-out to shareholders is not necessary. Therefore, option C is the best choice.

Question 9

Accounting standard AASB 101 requires that a summary of accounting policies should be included:
A)in a schedule attached to the annual report.
B)in the initial section of the notes to the financial statements.
C)on the first page of the annual report.
D)as a footnote to the balance sheet.

Accepted Answer

Accounting standard AASB 101 specifically requires that the summary of accounting policies should be included as a part of the notes to the financial statements. Therefore, option B is the correct choice. Options A, C, and D are not consistent with the standard.

Question 10

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

Accepted Answer

Under the percentage of completion method, profit is recognized based on the degree of completion of the project, not on instalments of contract income received. The method considers the total cost incurred so far and the estimated total cost to determine the percentage of completion, which is then used to recognize revenue and profit.

Question 11

The underlying basis for the use of historical cost is the:
A)relevance principle.
B)matching principle.
C)comparability principle.
D)reliability principle.

Accepted Answer

The use of historical cost is based on the reliability principle, which states that financial information should be verifiable, faithful representation of the underlying economic events, and free from bias or error. Historical cost is considered reliable because it is based on objective, verifiable data from past transactions. While relevance, matching, and comparability are important principles in accounting, they are not specifically related to the use of historical cost.

Question 12

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

Accepted Answer

Accountants typically do not adjust financial statements to account for changes in the value of the dollar. This is because the dollar is considered the reporting currency and the financial statements are prepared in that currency. However, if a company operates in a foreign country and has significant transactions in a foreign currency, they may need to adjust for currency fluctuations using appropriate accounting standards such as ASC 830.

Question 13

AASB 110 refers to subsequent events that provide evidence about conditions that existed at reporting date.Such events:
A)must be disclosed in a footnote to the financial statements.
B)must be referred to in the auditor's report.
C)do not have any effect on the accounts until the next financial period.
D)require adjustments to the figures in the financial statements.

Accepted Answer

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

Question 14

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

Accepted Answer

The change in useful life of the equipment from six years to three years is a change in accounting estimate, which should be disclosed in a note to the financial statements as required by AASB 101. It does not constitute a change in accounting policy, recording error, or a contingency.

Question 15

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?
A)substantial borrowings or share issues
B)specific information on the size of a bad debt that had previously been considered doubtful
C)a major fire or flood loss
D)becoming a party to a legal action

Accepted Answer

The specific information on the size of a bad debt that had previously been considered doubtful would be considered a measurement adjustment, rather than a subsequent event, as it relates to information that existed at the balance date. Subsequent events refer to events that occur after the balance date and provide additional information about the entity's financial position at the balance date. The other options (A, C, D) all describe events that would be considered subsequent events as they pertain to new events or conditions that have arisen after the balance date.

Question 16

Under AASB 101,which of the following is not required to be disclosed in the annual reports of ASX-listed companies?
A)Provision for doubtful debts deducted from debtors
B)Comparative figures for the previous financial year
C)Information on executives' remuneration
D)None of the above,i.e.all are required to be disclosed

Accepted Answer

AASB 101 requires all ASX-listed companies to disclose provision for doubtful debts deducted from debtors, comparative figures for the previous financial year, and information on executives' remuneration in their annual reports. Therefore, none of the options are not required to be disclosed.

Question 17

Which of these items must be disclosed in general purpose financial reports under AASB 101?
A)interest on borrowings
B)different categories of receivables
C)comparative figures
D)all of the above

Accepted Answer

All of the listed items (interest on borrowings, different categories of receivables, and comparative figures) must be disclosed in general purpose financial reports under AASB 101.

Question 18

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

This statement is true. The move to show some assets at current cost rather than historical cost is driven by the need for relevancy, as it provides more up-to-date and relevant information about an entity's financial position. However, it also means that the reported figures may be less reliable than those based on historical cost, as they are subject to fluctuations in market values.

Quiz 17: The Framework of Accounting

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

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

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

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

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:

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

The Australian Accounting Standard dealing with hyperinflation is:

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:

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

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

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

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

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

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?

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

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

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.