TEST BANK for Financial Reporting 4th Edition By Janice Loftus, Ken Leo, Sorin Daniliuc, Belinda Luk by digitaldownload87

Chapter 1: Accounting regulation and the Conceptual Framework Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 1: Accounting regulation and the Conceptual Framework Multiple choice questions 1. The Corporations Act requires the preparation of a financial report and directors' report each financial year by all: a. small proprietary companies. b. non-disclosing entities. *c. public companies. d. private companies. General Feedback: Learning objective 1.1 understand the major sources of regulation of financial reporting in Australia. 2. The New Zealand External Reporting Board (XRB) accounting framework classify Tier 1 not-forprofit public benefit entities (PBEs) as: a. entities allowed by law to use cash accounting. b. non-large. c. expenses <= $2m. *d. publicly accountable, or large. General Feedback: Learning objective 1.3: Identify the roles of the key bodies involved in the financial reporting framework in New Zealand. 3. Which of the following statements is false? *a. The IFRS Advisory Council is directly accountable to the Monitoring Board. b. Australia adopted international accounting standards issued on or after 1 January 2005. c. The IASB and IFRS Interpretations Committee are appointed and overseen by a geographically and professionally diverse group called the IFRS Foundation Trustees. d. The IASB is an independent standard-setting board that develops and approves International Financial Reporting Standards. General Feedback: Learning objective 1.4: explain the structure, role and processes of the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IFRIC). 4. Which of the following is not a chapter in the IASB's Conceptual Framework?

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Testbank to accompany Financial reporting 4e by Loftus et al.

a. Measurement. b. Qualitative characteristics of useful financial reporting. c. The objective of general purpose financial reporting. *d. The issues with financial reporting. General Feedback: Learning objective 1.5: explain the key components of the Conceptual Framework. 5. Which of the following statements about the Conceptual Framework is true? a. The Conceptual Framework deals with the objective of special purpose financial statements. b. The Conceptual Framework for Financial Reporting provides guidelines intended to meet the information needs of a range of users who are able to command that reports be prepared to their own particular needs. *c. The Conceptual Framework deals with the objective of general purpose financial statements. d. the Conceptual Framework for Financial Reporting, SAC 1, and SAC 2 provides guidelines on the preparation of financial statements for a specific group of users. General Feedback: Learning objective 1.5: explain the key components of the Conceptual Framework. 6. The two fundamental qualitative characteristics of useful information are: a. materiality and timeliness. b. understandability and verifiability. c. faithful representation and comparability. *d. relevance and faithful representation. General Feedback: Learning objective 1.6: explain the qualitative characteristics that make information in financial statements useful. 7. For information to be considered material: a. it must be complete. b. it must not include any bias. *c. its omission or misstatement could influence users' decision-making. d. it has a predictive or confirmatory value. General Feedback: Learning objective 1.6: explain the qualitative characteristics that make information in financial statements useful.

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Chapter 1: Accounting regulation and the Conceptual Framework Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Costs of providing useful information include: a. collection and processing costs. b. dissemination costs. c. verification costs. *d. All of these options are costs of providing useful information. General Feedback: Learning objective 1.6: explain the qualitative characteristics that make information in financial statements useful. 9. If different independent observers could reach the same general conclusions that the information represents, then the quality of the information has achieved: a. neutrality. b. understandability. *c. verifiability. d. comparability. General Feedback: Learning objective 1.6: explain the qualitative characteristics that make information in financial statements useful. 10. Which of the following statements about the going concern assumption is not true? a. it can justify the use of historical costs when measuring non-current assets. b. it supports the use of assets such as Prepaid Expenses. c. it supports the systematic allocation of depreciation over an asset's useful life. *d. it is used when an entity goes into liquidation. General Feedback: Learning objective 1.7: describe the objective and scope of financial statements prepared by a reporting entity. 11. Which of the following are the three essential criteria in the definition of an asset:

a. I, III, VI.

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Testbank to accompany Financial reporting 4e by Loftus et al.

*b. II, IV, VI. c. II, III, VI. d. I, III, V. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses. 12. The only financial statement element which cannot be defined independently of the other elements under the Conceptual Framework is: *a. equity. b. assets. c. income. d. expenses. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses. 13. Which of the following statements is correct? a. Equity is defined as 'the residual interest in the assets of the entity after deducting all its expenses'. *b. Equity is increased by profit and owner contributions. c. Equity is decreased by an entity's income. d. Equity cannot be sub-classified in the statement of financial position. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses. 14. An example of an expense, as defined in the Conceptual Framework, is: a. Payment to a supplier for purchases made on credit. b. Dividends paid to shareholders. c. Cash purchase of office equipment. *d. Wages paid on a weekly-basis to employees. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.

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Chapter 1: Accounting regulation and the Conceptual Framework Not for distribution in full. Instructors may assign selected questions in their LMS.

15. Which of the following statements about income is not true? *a. Income includes capital contributed by owners of the entity. b. Income can be in the form of decreases of liabilities. c. Income arises when there is control over the increase in economic benefits. d. Income results in increases in economic benefits. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses. 16. Which of the following is not an example of a settlement of a liability? a. cash payment. b. provision of services. *c. owner contribution. d. creditor waiving their rights to the obligation. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses. 17. Fiona's Flowers rents a small shop located in the outskirts of Sydney. In accordance with the Conceptual Framework, Fiona's Flowers should recognise the monthly payment for the shop rental as: a. an increase in income and a decrease in liabilities. b. a decrease in assets and an increase in equity. c. a decrease in assets and a decrease in income. *d. a decrease in assets and an increase in expense. General Feedback: Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses. 18. The two recognition criteria for the elements of financial statements are: a. Faithful representation and Existence of economic benefits. b. Existence of economic benefits and Control. *c. relevant and faithful representation. d. Probability of occurrence and Control. General Feedback:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 1.9: explain the criteria for recognising and derecognising the elements of financial statements. 19. James Ltd purchased a block of land on 31 March and paid $300 000 cash to the land owner. An independent evaluation reveals that the land is worth $550 000. Using historical cost as a measurement base, how should James Ltd recognise this purchase of land in its financial statements? a. $300 000 recognised as an asset (land) and $250 000 as a liability. *b. $300 000 recognised as an asset (land). c. $550 000 recognised as an asset (land). d. The land should not be recognised as an asset as it cannot be reliably measured. General Feedback: Learning objective 1.10: compare alternative measurement bases for measuring the elements of financial statements. 20. Which of the following statements is incorrect about the physical capital concept? *a. The general price level accounting system follows the physical capital concept. b. Capital is seen as the operating capability of the entity's assets. c. Profit is earned after an entity has set aside enough capital to maintain the operating capability of the entity's assets. d. Physical capital may be measured under a current value system. General Feedback: Learning objective 1.12: outline concepts of capital.

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Chapter 2: Application of accounting theory Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 2: Application of accounting theory Multiple choice questions 1. In which of the following contexts would accountants be required to exercise professional judgement? a. Deciding whether property, plant and equipment should be measured at fair value after its initial recognition. b. Determining the most appropriate depreciation method to be used for non-current assets. c. Measuring the net realisable value of inventories. *d. All of the options are correct. General Feedback: Learning objective 2.1: describe the role of professional judgement in the preparation of financial reports. 2. Which of the following correctly describes 'principles-based' accounting standards: a. Principles-based standards attempt to prescribe the accounting treatment for every possibility, leaving little room for judgement or discretion in its application. *b. Principles-based standards prescribe principles that can be applied to a range of different situations. c. Principles-based standards use objective criteria in determining which accounting treatment should be applied to a transaction. d. An example of a principles-based standard may state that all expenditure on advertising must be accounted for as an expense. General Feedback: Learning objective 2.1: describe the role of professional judgement in the preparation of financial reports. 3. Which of the following correctly describes 'rules-based' accounting standards: *a. Rules-based standards attempt to prescribe the accounting treatment for every possibility, leaving little room for judgement or discretion in its application. b. Rules-based standards prescribe rules that can be applied to a range of different situations. c. Rules-based standards involve a subjective assessment in applying the rules. d. Rules-based standards can usually be applied to a range of different situations. General Feedback: Learning objective 2.1: describe the role of professional judgement in the preparation of financial reports.

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Testbank to accompany Financial reporting 4e by Loftus et al.

4. Considering whether a past event has arisen relates to which of the following components in accounting policy decisions: *a. Definition. b. Recognition. c. Measurement. d. Disclosure. General Feedback: Learning objective 2.2: identify the major decision areas in considering policies to account for transactions and other events. 5. Positive theories: a. explain why managers choose a particular accounting method. b. might be descriptive of accounting practice. c. rely on real-world observations. *d. All of the options are correct. General Feedback: Learning objective 2.3: explain how normative and positive theories are used in accounting. 6. Positive theories are developed using the following process: a. Principles Assumptions Objectives Definitions/Actions. b. Objectives Definitions/Actions Assumptions Principles. *c. Definitions/Actions Principles Assumptions Objectives. d. Objectives Assumptions Principles Definitions/Actions. General Feedback: Learning objective 2.3: explain how normative and positive theories are used in accounting. 7. Normative theories are developed using the following process: a. Principles Assumptions Objectives Definitions/Actions. b. Objectives Definitions/Actions Assumptions Principles. c. Definitions/Actions Principles Assumptions Objectives. *d. Objectives Assumptions Principles Definitions/Actions. General Feedback: Learning objective 2.3: explain how normative and positive theories are used in accounting.

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Chapter 2: Application of accounting theory Not for distribution in full. Instructors may assign selected questions in their LMS.

8. John observes that the bank overdraft account is a liability account and has a credit balance. He also notices that the accounts payable account is a liability account and has a credit balance. Therefore, John comes to the conclusion that all liability accounts have a credit balance. Which approach is Marcus using in developing his theory that all liability accounts having credit balances? a. Conceptual reasoning. b. Conclusive reasoning. *c. Inductive reasoning. d. Deductive reasoning. General Feedback: Learning objective 2.3: explain how normative and positive theories are used in accounting. 9. A limitation of the use of inductive reasoning in the development of an accounting theory is that it: *a. does not question the appropriateness of the observed actions. b. attempts to improve a particular process. c. is based on identifying a set of objectives. d. is only useful for developing normative theories. General Feedback: Learning objective 2.3: explain how normative and positive theories are used in accounting. 10. Which of the following statements is correct? a. Accounting is only concerned with recording transactions and does not require professional judgement. b. Normative theories tend to maintain the status quo. *c. The process of deductive reasoning starts with objective setting. d. The conceptual framework is developed through an inductive approach. General Feedback: Learning objective 2.3: explain how normative and positive theories are used in accounting. 11. Positive accounting theory is based on an economic assumption that all individuals act in their own self-interest and are wealth maximisers. This economic assumption is referred to as the: a. responsible economic person assumption. b. logical economic person assumption. *c. rational economic person assumption. d. reasonable economic person assumption. General Feedback:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 12. Which of the following is not a relationship focused on by positive accounting theory? a. debt contracts. b. political contracts. c. managerial contracts. *d. creditor contracts. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 13. Which of the following statements is not consistent with agency theory? a. Managers are employed to conduct business on behalf of the shareholders. b. Managers have a legal and fiduciary duty to act in the best interests of the shareholders. *c. Managers are more likely to favour the interests of lenders in managing debt contracts. d. Costs are incurred in monitoring and controlling agent's behaviour. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 14. An example of monitoring costs is: *a. implementing a management remuneration plan. b. preparing quarterly financial statements for lenders. c. linking management incentives to entity performance. d. measuring the residual loss of the manager purchasing office supplies for his/her own personal use. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 15. The majority of monitoring and bonding costs will be borne by: a. shareholders. b. creditors. *c. agents.

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Chapter 2: Application of accounting theory Not for distribution in full. Instructors may assign selected questions in their LMS.

d. principals. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 16. Residual loss, as an agency cost, refers to: a. the costs incurred by the agent when implementing assurances that they are acting in the principal's best interests. b. the costs incurred by the principal in observing, evaluating and controlling the agent's behaviour. c. the amount by which the marginal cost is less than the expected benefit of additional monitoring and bonding. *d. the amount by which the marginal cost exceeds the expected benefit of additional monitoring and bonding. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 17. Positive accounting theory suggests that the separation of ownership and control within an entity means managers, as agents, are likely to act: *a. in their own interests. b. in the interests of the debtholders. c. in the interests of the shareholders. d. in the interests of the directors. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 18. Which of the following is not identified as one of the major problems that can arise in ownermanager agency relationships? a. Risk aversion. b. Dividend retention. *c. Reduced incentives. d. Horizon problems. General Feedback:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 19. In an owner-manager agency relationship the problem of risk aversion arises because: a. shareholders prefer the managers to take fewer risks in order to maximise the returns on their investment. *b. managers prefer to make decisions that are less risky for the entity as they have more to lose than the shareholders. c. managers have less capital invested in the entity than shareholders. d. shareholders generally have no other sources of income. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 20. An agreement between managers and lenders to maintain a minimum ratio of working capital can assist which of the following problems in relation to increased lender's risk? a. claim dilution. b. asset substitution. c. underinvestment. *d. excessive dividend payments. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 21. Claim dilution arises when: a. the entity is unable to repay a loan. b. a lender restricts an entity from obtaining debt of a lower priority. *c. the entity takes out a secured loan after obtaining an unsecured loan from another lender. d. a lender restricts an entity from obtaining debt with an earlier maturity date. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 22. The problem of 'underinvestment' occurs when managers are reluctant to undertake projects with positive net present value because:

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Chapter 2: Application of accounting theory Not for distribution in full. Instructors may assign selected questions in their LMS.

a. shareholders prefer less risk than do lenders and managers. *b. the increased funds obtained from the projects will rank higher in priority of payments to creditors over shareholders in the event of the entity being liquidated. c. the projects would result in a reduction of managers' incentives. d. managers prefer to maintain a high level of funds within the entity. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 23. The following statements about asset substitution are true except for: a. Managers have incentives to use debt finance to invest in higher-risk assets with the expectation of obtaining higher returns for shareholders. *b. Lenders are willing to share higher returns earned when managers invest in higher-risk projects. c. A debt covenant that restricts investment opportunities of the entity can reduce the entity's borrowing costs. d. Asset substitution arises when an entity uses borrowed funds to invest in higher risk assets than those agreed upon in the debt contract. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 24. An example of political costs is: a. lower taxes on mining companies. *b. economic sanctions imposed on retailers who purchase their supplies from overseas businesses that use child labour. c. excessive consumption of perquisites. d. having a debt covenant. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 25. Under the debt hypothesis for accounting policy choice: a. managers act in their own interests and therefore prefer more remuneration. b. managers of entities with bonus plans prefer accounting policies that increase profit in the long-term. c. managers have no discretion in choosing accounting policies relating to debt.

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Testbank to accompany Financial reporting 4e by Loftus et al.

*d. managers of entities with high leverage are likely to choose accounting policies that increase profit and equity. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 26. Which of the following statements is true with regards to the political cost hypothesis? a. Political costs arise as a result of an entity's relationships with shareholders and lenders. b. Managers of financial institutions may prefer to increase profits to reduce government pressure to pass on interest rate cuts. c. Smaller entities are more likely to be the target of environmental groups. *d. Managers of entities that are more politically visible are expected to choose accounting policies that reduce profit in order to avoid political costs. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 27. The horizon problem in owner-manager agency relationships can be reduced by: a. paying a bonus linked to the dividend pay-out ratio. b. encouraging managers to invest in higher risk projects. c. linking management's bonus to profits. *d. aligning manager's interests with the longer-term interests of shareholders through sharebased remuneration schemes. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice. 28. Which of the following is not an example of a debt covenant? a. a maximum leverage ratio of 70%. *b. a maximum interest cover of 2.5 times. c. a restriction in the amount of dividends distributed as a percentage of profit. d. a restriction in undertaking mergers and takeovers unless approved by the lender. General Feedback: Learning objective 2.4: explain the implications of positive accounting theory for accounting policy choice.

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Chapter 2: Application of accounting theory Not for distribution in full. Instructors may assign selected questions in their LMS.

29. Which of the following statements about the efficient-market hypothesis is not correct? a. Security prices in an efficient market rapidly respond to new information. b. Investors in an efficient-market are unable to earn returns greater than those commensurate with the level of risk. *c. Good news of an entity's future prospects would lead to a decrease in demand for the entity's shares. d. Increased demand for shares will lead to an increase in the share price. General Feedback: Learning objective 2.5: compare the implications of the mechanistic hypothesis and the efficient market hypothesis for financial reporting. 30. The mechanistic hypothesis of capital markets means that: *a. investors are assumed to ignore differences in accounting policies when analysing financial statements. b. investors are not easily fooled by changes in the depreciation rates. c. investors respond differently to increases in profit when they result from cash flow implications as opposed to non-cash flow implications. d. available information can be used to earn returns beyond those that compensate for the risk involved. General Feedback: Learning objective 2.5: compare the implications of the mechanistic hypothesis and the efficient market hypothesis for financial reporting. 31. Which of the following statements about the strong form of market efficiency is not correct? a. Security prices fully reflect all information, including that which is not publicly available. *b. Investors are able to participate in 'insider trading'. c. Investors are unable to earn abnormal returns through private information. d. Capital markets are not considered to be efficient in the strong form. General Feedback: Learning objective 2.5: compare the implications of the mechanistic hypothesis and the efficient market hypothesis for financial reporting. 32. A weak form of market efficiency implies that: a. investors would be able to earn abnormal returns by using publicly available information.

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Testbank to accompany Financial reporting 4e by Loftus et al.

*b. a security's price at a particular time fully reflects the information contained in its sequence of past prices. c. investors would be unable to earn abnormal returns by trading on private information. d. a security's price at a particular time fully reflects both publicly and privately available information. General Feedback: Learning objective 2.5: compare the implications of the mechanistic hypothesis and the efficient market hypothesis for financial reporting. 33. The most relevant form of market efficiency to financial reporting is: a. the weak form. *b. the semi-strong form. c. the strong form. d. None of the options is correct. General Feedback: Learning objective 2.5: compare the implications of the mechanistic hypothesis and the efficient market hypothesis for financial reporting.

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Chapter 3: Ethics Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 3: Ethics Multiple choice questions 1. Ethics is the study of how to: a. explain phenomena. *b. make moral choices. c. predict phenomena. d. ensure legal compliance. General Feedback: Learning objective 3.1: explain the nature of ethics and its relevance to accounting practice 2. Which of the following professional bodies follow APES 110 Code of Ethics for Professional Accountants: a. Chartered Accountants Australia and New Zealand. b. CPA Australia. c. Institute of Public Accountants. *d. All of the options are correct. General Feedback: Learning objective 3.1: explain the nature of ethics and its relevance to accounting practice 3. There are a number of reasons why understanding different perspectives on ethics is important, such as: a. laws and codes of conduct cannot cover every ethical challenge. b. enabling you to judge the strengths and weakness of laws and codes. c. interpretation is often still required. *d. All of the options are correct. General Feedback: Learning objective 3.1: explain the nature of ethics and its relevance to accounting practice 4. A code for ethical conduct provides a framework for ethical problems. It is not intended to assist with:

a. identifying ethical problems. b. evaluating ethical problems. *c. enforcing laws to ethical problems.

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Testbank to accompany Financial reporting 4e by Loftus et al.

d. addressing ethical problems. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 5. The following are possible sanctions a professional body may impose for breaches of APES 110 by a member, except for: a. permanent expulsion. b. fines. c. membership suspension. *d. waiver of membership fees. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 6. The APES 110 Code of Ethics for Professional Accountants fundamental principles include:

a. I. *b. II. c. III. d. IV. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards)

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Chapter 3: Ethics Not for distribution in full. Instructors may assign selected questions in their LMS.

7. The threats to the APES 110 Code of Ethics for Professional Accountants fundamental principles include:

a. I. b. II. *c. III. d. IV. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 8. To act with 'integrity' is to: a. not to compromise professional or business judgements because of bias, conflict of interest or undue influence of others. b. to comply with relevant laws and regulations and avoid any conduct that the Member knows or should know might discredit the profession. *c. to be straightforward and honest in all professional and business relationships. d. to respect the confidentiality of information acquired as a result of professional and business relationships. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 9. To follow the principle of 'professional behaviour', means to: a. be straightforward and honest in all professional and business relationships. b. not compromise professional or business judgements because of bias, conflict of interest or undue influence of others.

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Testbank to accompany Financial reporting 4e by Loftus et al.

*c. comply with relevant laws and regulations and avoid any conduct that the Member knows or should know might discredit the profession. d. respect the confidentiality of information acquired as a result of professional and business relationships. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 10. The 'self-review' threat to the APES 110 Code of Ethics for Professional Accountants principles means that: *a. a Member will not appropriately evaluate the results of a previous judgement made when forming a judgement as part of performing a current activity. b. due to a long or close relationship with a client, a Member will be too sympathetic to their interests. c. a Member will be deterred from acting objectively because of actual or perceived pressures. d. a Member will promote a client's position to the point that the Member's objectivity is compromised. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 11. The 'advocacy' threat to the APES 110 Code of Ethics for Professional Accountants principles means that: a. a Member will not appropriately evaluate the results of a previous judgement made when forming a judgement as part of performing a current activity. b. due to a long or close relationship with a client, a Member will be too sympathetic to their interests. *c. a Member will promote a client's position to the point that the Member's objectivity is compromised. d. a Member will be deterred from acting objectively because of actual or perceived pressures. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 12. The 'Self-interest' threat to the APES 110 Code of Ethics for Professional Accountants principles means that:

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Chapter 3: Ethics Not for distribution in full. Instructors may assign selected questions in their LMS.

a. a Member will not appropriately evaluate the results of a previous judgement made when forming a judgement as part of performing a current activity. b. due to a long or close relationship with a client, a Member will be too sympathetic to their interests. c. a Member will be deterred from acting objectively because of actual or perceived pressures. *d. a financial or other interest will inappropriately influence a Member's judgement or behaviour. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 13. When threats exist to compliance with the fundamental principles, APES 110 Code of Ethics for Professional Accountants sets out the following actions, except for: a. applying safeguards to reduce the threats to an acceptable level. b. eliminating the circumstances that are creating the threats. *c. appointing another Member to oversee and review all work undertaken. d. ending the specific professional activity. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 14. There are three options for responding to threats to the fundamental principles, including: a. eliminating the threat(s). *b. appointing an overseer. c. ending the engagement. d. applying safeguards. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 15. The general definition of 'safeguards' per paragraph 120.10 A2 is: a. a level at which a Member using the reasonable and informed third party test would likely conclude compliance with the fundamental principles. b. eliminating the circumstances, including interests or relationships, that are creating the threats. *c. actions, individually or in combination, that the Member takes that effectively reduce threats to compliance with the fundamental principles to an Acceptable Level.

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Testbank to accompany Financial reporting 4e by Loftus et al.

d. declining or ending the specific Professional Activity. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 16. Requirement R220.4 states when preparing or presenting information, a Member shall: a. present information in a manner to mislead. *b. exercise professional judgement. c. omit anything with the intention of rendering the information misleading. d. prepare information outside of the reporting framework. General Feedback: Learning objective 3.2: explain the fundamental ethical principles for accounting professionals specified in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 17. The theory that views are subjective and there can be no 'right' answer to ethical questions is called: *a. moral relativism. b. moral universalism. c. virtue ethics. d. duty-based ethics. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 18. Which of the following was not one of virtues provided by Aristotle: a. wisdom. b. courage. *c. anger. d. temperance. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 19. The ethical idea that one should do 'the greatest good for the greatest number' is referred to as: a. moral relativism.

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Chapter 3: Ethics Not for distribution in full. Instructors may assign selected questions in their LMS.

*b. utilitarianism. c. duty-based ethics. d. discourse ethics. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 20. Immanuel Kant's proposed that all rational beings would agree on a 'categorical imperative', which would dictate what our moral obligations are towards all other people. This was part of which ethical approach? a. moral relativism. b. utilitarianism *c. duty-based ethics. d. discourse ethics. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 21. The ethical perspective that you should act in accordance with the decision freely agreed to by all affected stakeholders is called: *a. discourse ethics. b. virtue ethics. c. duty-based ethics. d. teleological ethics. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 22. Which of the following statements describes how Aristotle's ethical perspective is determined: a. Whether conduct would violate the categorical imperative principles of universality, ends versus means and autonomy. *b. If conduct is in accordance with a list of virtues. c. Assemble all stakeholders and facilitate dialogue under conditions of ideal speech. d. Affected stakeholders and calculate the impact on their utility. General Feedback:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 23. Criticisms of Bentham's ethical perspective include: a. How to know which virtues to apply? b. What to do in cases of conflicting rights? *c. What stakeholders should be included in terms of location and time? d. Assumption that stakeholders will eventually agree is unrealistic. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 24. Criticisms of Kant's ethical perspective include: a. How to know which virtues to apply? *b. What to do in cases of conflicting rights? c. What stakeholders should be included in terms of location and time? d. Assumption that stakeholders will eventually agree is unrealistic. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 25. How was Aristotle's ethical perspective reflected in APES 110 Code of Ethics for Professional Accountants? *a. A list of virtues such as 'fundamental principles' is provided. b. The standard was developed via the process of stakeholder consultation. c. Potentially conflicting duties of confidentiality versus public disclosure. d. Overarching requirement is to act in the 'public interest'. General Feedback: Learning objective 3.3: Distinguish between ethical perspectives based on character, consequences, rights and discourse. 26. The first step of the DECIDE model is to: a. Ethically review the situation. b. Consider options. c. Decide on a plan.

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Chapter 3: Ethics Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. Define the problem. General Feedback: Learning objective 3.4: develop solutions to ethical problems in an accounting context by clarifying values, making decisions ethically using the DECIDE model. 27. To review the possible actions available is which element of the DECIDE model: a. Evaluate results. b. Define the problem. *c. Consider options. d. Investigate ethical outcomes. General Feedback: Learning objective 3.4: develop solutions to ethical problems in an accounting context by clarifying values, making decisions ethically using the DECIDE model. 28. The last step of the DECIDE model involves: a. resolving to take an action and implement a plan. *b. reviewing the outcome, enabling a deeper understating as to how the situation might be addressed if it occurs again. c. establishing the facts of a case. d. seeking guidance from others who have faced similar situations. General Feedback: Learning objective 3.4: develop solutions to ethical problems in an accounting context by clarifying values, making decisions ethically using the DECIDE model. 29. Should you encounter a difficult ethical issue, sources of guidance may include: a. The human resources department. b. Helplines. c. Senior managers. *d. All of the options are correct. General Feedback: Learning objective 3.4: develop solutions to ethical problems in an accounting context by clarifying values, making decisions ethically using the DECIDE model. 30. Research suggests there are three ways to increase the probability of intention into action. Which of the following is not one of the three ways:

3.10

Testbank to accompany Financial reporting 4e by Loftus et al.

a. Considering context. *b. Being friendly. c. Optimising core activities. d. Having an appropriate response to ethical lapses. General Feedback: Learning objective 3.4: develop solutions to ethical problems in an accounting context by clarifying values, making decisions ethically using the DECIDE model.

3.11

Testbank to accompany Financial reporting 4e by Loftus et al.

Chapter 4: Fair value measurement Multiple choice questions 1. The two most common valuation measures used in Accounting Standards are: a. Fair value less costs to sell and carrying amount. b. Net realisable value and fair value. c. Value in use and net realisable value. *d. Cost and fair value. General Feedback: Learning objective 4.1: identify the need for an accounting standard on fair value measurement. 2. All of the following statements are key reasons given by the IASB for issuing a standard on fair value measurement except for: *a. To require the use of fair value when accounting for all non-financial assets. b. 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. c. To clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly. 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. General Feedback: Learning objective 4.1: identify the need for an accounting standard on fair value measurement. 3. The objective of AASB 13/IFRS 13 is to: a. set out a framework for measuring fair value. b. define fair value. c. require disclosures about fair value measurements. *d. All of the options are correct. General Feedback: Learning objective 4.1: identify the need for an accounting standard on fair value measurement.

4.1

Chapter 4: Fair value measurement Not for distribution in full. Instructors may assign selected questions in their LMS.

4. Which of the following documents issued alongside AASB 13/IFRS 13 would not be considered an integral part of the standard? I Appendix A: Defined terms. II Appendix B: Application guidance. III Basis for Conclusions. IV Illustrative Examples. a. I and II . b. II and III. *c. III and IV. d. IV and I. General Feedback: objective 4.2: explain the definition of fair value. 5. Appendix A of AASB 13/IFRS 13 Fair Value Measurement defines fair value as: 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 paid to purchase an asset or transfer a liability. c. 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). *d. 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. General Feedback: Learning objective 4.2: explain the definition of fair value. 6. Fair value is determined as: *a. the current exit price. b. the current entry price. c. a future entry price. d. a future exit price.

General Feedback: objective 4.2: explain the definition of fair value. 7. AASB 13/IFRS 13 defines exit price as: © John Wiley and Sons Australia, Ltd 2022

4.2

Testbank to accompany Financial reporting 4e by Loftus et al.

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 price that would be received to sell an asset or paid to transfer a liability. 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 amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction. General Feedback: objective 4.2: explain the definition of fair value. 8. Which of the following is not a characteristic of a market participant under AASB 13/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 related parties. c. Buyers and sellers that are willing to enter into a transaction for the asset or liability. d. Buyers and sellers that are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information. General Feedback: Learning objective 4.2: explain the definition of fair value. 9. The following elements are required for a fair value measurement, except for: a. the appropriate valuation method(s). b. the particular asset or liability to be measured. c. for a non-financial asset, the appropriate valuation consistent with highest and best use. *d. the least advantageous market. General Feedback: Learning objective 4.3: Describe the steps involved in the fair value measurement approach. 10. 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 1 input. b. a Level 2 input. c. a Level 3 input.

4.3

Chapter 4: Fair value measurement Not for distribution in full. Instructors may assign selected questions in their LMS.

d. a Level 4 input. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 11. The following are examples of an inactive market except for: a. Price quotations vary substantially over time. b. Price quotations vary substantially among market-makers. *c. Price quotations are based on current market information. d. There are few recent transactions. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 12. The fair value of an asset is based on its: *a. highest and best use. b. current use. c. proposed use. d. value in use. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 13. The market with the greatest volume and level of activity for the asset or liability is defined as the: a. most active market. b. current market. *c. principal market. d. most advantageous market. General Feedback: objective 4.4: apply the fair value measurement approach to non-financial assets. 14. Valuation techniques that reflect the amount that would be required currently to replace the service capacity of an asset is an example of: a. the fair value approach. b. the income approach.

4.4

Testbank to accompany Financial reporting 4e by Loftus et al.

*c. the cost approach. d. the market approach. General Feedback: objective 4.4: apply the fair value measurement approach to non-financial assets. 15. The following are valuation techniques prescribed by AASB 13/IFRS 13 except for: a. The cost approach. b. The income approach. c. The market approach. *d. The fair value approach. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 16. Which type of input is the primary measurement basis for trademarks? a. Level 1 inputs. b. Level 2 inputs. *c. Level 3 inputs. d. Level 4 inputs. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 17. Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly, are an example of: a. a Level 1 input. *b. a Level 2 input. c. a Level 3 input. d. a Level 4 input. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 18. Which of the following is not an example of a level 2 input? a. Quoted prices for identical or similar assets or liabilities in markets that are not active.

4.5

Chapter 4: Fair value measurement Not for distribution in full. Instructors may assign selected questions in their LMS.

b. Inputs such as interest rates and yield curves, volatilities, prepayment speeds, and credit risks. *c. Measuring accounts receivable based on the entity's historical records of recoverability. d. Inputs that are derived from or corroborated by observable market data by correlation or other means. General Feedback: Learning objective 4.4: apply the fair value measurement approach to non-financial assets. 19. Which of the following steps is not relevant when measuring liabilities? a. The particular liability that is the subject of the measurement. b. The principal (or most advantageous) market for the liability. *c. The valuation premise that is appropriate for the measurement. d. The valuation technique(s) appropriate for the measurement. General Feedback: Learning objective 4.5: apply the fair value measurement principles to liabilities. 20. When measuring the fair value of a liability, it is assumed that: *a. the liability will be settled by the market participant. b. the liability will not be settled. c. the liability will be settled by the holder. d. the liability is settled with the counterparty on measurement date. General Feedback: Learning objective 4.5: apply the fair value measurement principles to liabilities. 21. Where a liability is held as a corresponding asset by another entity, the fair value of the liability is determined from the perspective of a market participant that: a. applies a present value technique to measure the liability. b. applies the cost approach to valuing the liability. c. calculates the amount required to settle the present obligation. *d. holds the identical item as an asset at measurement date. General Feedback: Learning objective 4.5: apply the fair value measurement principles to liabilities.

4.6

Testbank to accompany Financial reporting 4e by Loftus et al.

22. According to Appendix B of AASB 13/IFRS 13, which of the following elements will be captured by using a present value technique: a. an estimate of future cash flows. b. the time value of money, represented by a risk-free interest rate. c. non-performance risk. *d. All of the options are correct. General Feedback: Learning objective 4.5: apply the fair value measurement principles to liabilities. 23. Which of the following statements relating to non-performance risk is incorrect? a. The entity's own credit risk is included. *b. The holder of a corresponding asset will not fulfil the obligation. c. The entity will not fulfil the obligation. d. It applies to liabilities. General Feedback: Learning objective 4.5: apply the fair value measurement principles to liabilities. 24. Which of the following is an example of a liability where there is no corresponding asset? a. A debenture issued by a listed company. b. A mortgage. c. A provision for warranties. *d. A provision for decommissioning. General Feedback: Learning objective 4.5: apply the fair value measurement principles to liabilities. 25. 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 entity issuing the equity instrument. b. the party planning to repurchase the instrument. c. the party to whom the instrument will be transferred. *d. a market participant who holds the instrument as an asset. General Feedback: Learning objective 4.6: discuss the measurement of the fair value of an entity's own equity instruments.

4.7

Chapter 4: Fair value measurement Not for distribution in full. Instructors may assign selected questions in their LMS.

26. 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. entry. *b. exit. c. transfer. d. settlement. General Feedback: Learning objective 4.6: discuss the measurement of the fair value of an entity's own equity instruments. 27. The fair value of an entity's own equity instruments will be determined under which of the following circumstances? a. Where the entity participates in a share buy-back. b. Where the entity is preparing for listing. *c. Where the entity undertakes a business combination and issues its own equity instruments in exchange for a business. d. Where there is a major change in the shareholding of the entity. General Feedback: Learning objective 4.6: discuss the measurement of the fair value of an entity's own equity instruments. 28. The following assumptions are made when measuring the fair value of an equity instrument except for: a. The market participant transferee will take on the rights and responsibilities associated with the instrument. b. An entity's own equity instrument would remain outstanding. c. The instrument would not be cancelled or otherwise extinguished on the measurement date. *d. An entity's own equity instruments are transferred to a market participant at transfer date. General Feedback: Learning objective 4.6: discuss the measurement of the fair value of an entity's own equity instruments. 29. Where a market has both a bid and an ask process, the price used in measuring fair value is:

4.8

Testbank to accompany Financial reporting 4e by Loftus et al.

a. the average of the bid-ask prices over a 3 month period. *b. the most representative price for the transaction. c. the ask price. d. the bid price. General Feedback: Learning objective 4.7: Describe two issues in the fair value measurement of financial instruments. 30. An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as: I the entity holds a net short position. II the entity holds a net long position. III the entity has a documented risk management strategy. IV the entity manages the group of financial assets and liabilities on a net exposure basis. a. I and II. b. I and III. c. II and IV. *d. III and IV. General Feedback: Learning objective 4.7: Describe two issues in the fair value measurement of financial instruments. 31. Which of the following disclosures are not required under AASB 13/IFRS 13? *a. Quantitative information about all unobservable inputs used in the fair value measurement. b. The valuation techniques used to measure fair value. c. The fair value measurement for each class of asset and liability at the end of the reporting period. d. The input level of the fair value hierarchy within which the fair value measurements are categorised. General Feedback: objective 4.8: summarise the disclosures required where assets, liabilities or equity is measured at fair value. 32. Which of the following disclosures are required under AASB 13/IFRS 13: a. The valuation techniques used to measure fair value.

4.9

Chapter 4: Fair value measurement Not for distribution in full. Instructors may assign selected questions in their LMS.

b. Non-recurring fair value measurements. c. Changes in the inputs used to measure fair value. *d. All of the options are correct. General Feedback: objective 4.8: summarise the disclosures required where assets, liabilities or equity is measured at fair value.

4.10

Chapter 5: Inventories Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 5: Inventories Multiple choice questions 1. Which of the following are common classifications for inventories in the financial statements:

a. I. b. II. *c. III. d. IV. General Feedback: Learning objective 5.1: explain the definition of inventories. 2. AASB 102/IAS 2 Inventories applies to the accounting for: a. biological assets. b. financial instruments. c. work in progress under long term construction contracts. *d. materials consumed in the manufacture of lawn mowers for sale. General Feedback: Learning objective 5.1: explain the definition of inventories. 3. When an entity's operating cycle is not clearly identifiable it is assumed to have a duration of: a. three months. b. six months. *c. 12 months. d. 2 years. General Feedback: Learning objective 5.1: explain the definition of inventories. 4. Inventories are defined in AASB 102/IAS 2 Inventories as assets:

5.2

Testbank to accompany Financial reporting 4e by Loftus et al.

a. in the form of materials or supplies to be consumed in the production process or in the rendering of services. b. in the process of production for such sale. c. held for sale in the ordinary course of business. *d. all of these options. General Feedback: Learning objective 5.1: explain the definition of inventories. 5. Which of the following measurement rules applies to inventories subsequent to their initial measurement? a. Historical cost. b. Fair value. c. Replacement cost. *d. Lower of cost and net realisable value. General Feedback: Learning objective 5.2: explain how to initially recognise and measure inventories. 6. AASB 102/IAS 2 states that the cost of purchase comprises of: a. import duties. *b. purchase price. c. transport and handling cost d. all of these options. General Feedback: Learning objective 5.3: explain what costs are included in the cost of inventories. 7. AASB 102/IAS 2 allows which of the following to be capitalised into the cost of inventories? a. Selling costs. *b. Normal costs of material wastage. c. Storage costs for finished goods. d. Administrative overheads. General Feedback: Learning objective 5.3: explain what costs are included in the cost of inventories. 8. Which of the following is specifically excluded by AASB 102/IAS 2 from the cost of inventories measurement?

5.3

Chapter 5: Inventories Not for distribution in full. Instructors may assign selected questions in their LMS.

a. Trade discounts received *b. Freight (where the terms of sale are FOB destination) c. Costs of designing inventory for an individual customer. d. Costs of converting supplies into specific products for sale. General Feedback: Learning objective 5.3: explain what costs are included in the cost of inventories. 9. Taxes may be included in the cost of inventories except for those taxes that are: a. levied on the inventories by a foreign government. *b. recoverable by the entity from the taxation authority. c. in the nature of import duties. d. imposed on the raw materials component of manufactured inventories. General Feedback: Learning objective 5.3: explain what costs are included in the cost of inventories. 10. The terms '2/10, n/30' appearing on an invoice for the sale/purchase of inventories means that the buyer: a. will receive a 10% discount if paid within 2 days of the invoice date, otherwise the full amount must be paid within 30 days of the invoice date. *b. will receive a 2% discount if paid within 10 days of the invoice date, otherwise the full amount must be paid within 30 days of the invoice date. c. has 10 days from the invoice date to pay the full amount or a 2% surcharge will be applied and total amount owing must be paid within 30 days of invoice date. d. has 2 days from the invoice date to pay the full amount or a 7% surcharge will be applied and total amount owing must be paid within 30 days of invoice date. General Feedback: Learning objective 5.3: explain what costs are included in the cost of inventories. 11. Which of the following statements is correct? a. The relationship between the closing inventories balance under the periodic and perpetual methods will depend on whether the FIFO (first-in, first-out) or weighted average method is used to value inventories. *b. Closing inventories will always be the same under the periodic and perpetual methods. c. The periodic method of accounting for inventories will always result in a lower closing inventories balance than the perpetual method.

5.4

Testbank to accompany Financial reporting 4e by Loftus et al.

d. The periodic method of accounting for inventories will always result in a higher closing inventories balance than the perpetual method. General Feedback: Learning objective 5.4: Account for inventories transactions using both the periodic and the perpetual methods. 12. Under the perpetual method, which of the following is an appropriate journal entry to recognise inventories items that have been stolen?

a. *b. c. d. General Feedback: Learning objective 5.5: explain and apply end-of-period procedures for inventories under both the periodic and the perpetual methods. 13. Under the periodic method, which of the following is an appropriate journal entry to recognise inventories items that have been stolen?

a. b. c. *d. Under the periodic method, inventory losses and fraud cannot be identified and recorded as a separate expense. General Feedback: Learning objective 5.5: explain and apply end-of-period procedures for inventories under both the periodic and the perpetual methods. 14. Under the periodic inventories approach, an appropriate journal entry to measure closing inventories would be:

5.5

Chapter 5: Inventories Not for distribution in full. Instructors may assign selected questions in their LMS.

a. b. *c. d. General Feedback: Learning objective 5.5: explain and apply end-of-period procedures for inventories under both the periodic and the perpetual methods. 15. Stocktake discrepancies between a count sheet and recorded quantities in the ledger may arise due to which of the following:

a. I, II and III b. I, III and IV *c. II, III and IV d. I, II and IV General Feedback: Learning objective 5.5: explain and apply end-of-period procedures for inventories under both the periodic and the perpetual methods. 16. Gray Ltd uses a periodic inventories system and rounds the average unit cost to the nearest dollar. The following data relates to Gray Ltd for the year ended 30 June 2023.

The cost of ending inventories using the weighted average cost method (rounded to the nearest dollar) is: *a. $2 106. b. $2 136.

5.6

Testbank to accompany Financial reporting 4e by Loftus et al.

c. $4 273. d. $6 966. General Feedback: Learning objective 5.6: explain why cost flow assumptions are required and apply both the FIFO and weighted average cost formulas.

17. Bull Ltd uses a periodic inventories system and rounds the average unit cost to the nearest dollar. The following data relates to Bull Ltd for the year ended 30 June 2023.

The cost of sales for the year using the weighted average method is: a. $194 400. b. $186 300. c. $193 200. *d. $185 150. General Feedback:

5.7

Chapter 5: Inventories Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 5.6: explain why cost flow assumptions are required and apply both the FIFO and weighted average cost formulas.

18. The weighted average inventories costing method is particularly suitable to inventories where: a. dissimilar products are stored in separate locations. *b. homogeneous products are mixed together. c. the entity carries stocks of raw materials, work-in-progress and finished goods. d. goods have distinct use-by dates and the goods produced first must be sold earliest. General Feedback: Learning objective 5.6: explain why cost flow assumptions are required and apply both the FIFO and weighted average cost formulas. 19. When an inventories costing formula is changed, the change is required to be applied: a. prospectively and the adjustment taken through the current profit or loss. b. prospectively and the current period adjustment recognised directly in equity. *c. retrospectively and the adjustment taken through the opening balance of retained earnings. d. retrospectively and the adjustment recognised as an extraordinary gain or loss. General Feedback: Learning objective 5.6: explain why cost flow assumptions are required and apply both the FIFO and weighted average cost formulas. 20. AASB 102/IAS 2 Inventories specifies that the measurement rule for inventories is: a. higher of initial cost and realisable value. b. higher of production costs and selling price. c. lower of fair value and selling price. © John Wiley and Sons Australia, Ltd 2022

5.8

Testbank to accompany Financial reporting 4e by Loftus et al.

*d. lower of cost and net realisable value. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 21. Inventories are to be measured at the lower of cost or net realisable value. Net realisable value is defined in AASB 102/IAS 2 Inventories as: a. the fair value of the inventories at purchase date. b. the amount paid for the purchase of the inventories in an arm's length transaction. *c. the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. d. the estimated buying price in the ordinary course of business. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 22. Net realisable value of inventories may fall below cost for a number of reasons including:

*a. I, II, IV and V only. b. I, IV and V only. c. II, III and IV only. d. I, II and V only. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 23. 'Net realisable value' of inventories is defined in AASB 102/IAS 2 as the estimated selling price in the ordinary course of business: a. in a forced sale. b. plus the estimated costs necessary to make the sale. *c. less the estimated costs of completion and the estimated costs necessary to make the sale. d. plus the estimated costs of completion and the costs necessary to make the sale. © John Wiley and Sons Australia, Ltd 2022

5.9

Chapter 5: Inventories Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 24. When determining the net realisable value of inventories, estimates must be made of which of the following:

a. I, II, III and IV. b. I, II and III only. c. II and IV only. *d. I, II and IV only. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 25. AASB 102/IAS 2 Inventories requires service providers to write down their inventories to net realisable value: a. on a class-by-class basis (e.g raw materials). *b. on an item-by-item basis. c. on a group basis. d. according to location or geographical segment within the entity. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 26. Where the net realisable value of inventories falls below cost, AASB 102/IAS 2 Inventories requires that: a. no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements. b. the difference be added to the carrying amount of the inventories. c. inventories continue to be carried in the statement of financial position at cost. *d. inventories be written down to net realisable value.

5.10

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 27. Johnny Ltd sells household cleaners and had the following items of inventories at reporting date.

Inventories are currently recorded at the higher of cost/NRV. What is the adjustment necessary at reporting date? a. DR Inventories $250. b. DR Inventories $0. c. CR Inventories $100. *d. CR Inventories $50. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 28. The write down of inventories to net realisable value in a prior period: a. can be reversed in a later period with no upper limit from a previous write down. b. cannot be reversed in a later period. *c. can be reversed in a later period but only to the upper limit of the original write-down. d. can be reversed in a later period so long as the value is recovered within 2 years of the original write down. General Feedback: Learning objective 5.7: explain the net realisable value basis of measurement and account for adjustments to net realisable value. 29. Which of the following is not recognised as an expense in accordance with AASB 102/IAS 2: a. Write-downs of inventories to net realisable value. b. Reversal of write downs to net realisable value. c. Cost of goods sold. *d. Inventories items used by an entity as components in self-constructed property, plant or equipment. General Feedback:

5.11

Chapter 5: Inventories Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 5.8: account for inventories expense. 30. AASB 102/IAS 2 Inventories requires items of inventories that are used by a business as components in a self-constructed property asset to be: a. added to a 'property construction' provision account. *b. capitalised and depreciated. c. expensed directly into equity in the period in which the items are used. d. aggregated into 'cost of goods sold' in the period in which the items are used. General Feedback: Learning objective 5.8: account for inventories expense. 31. AASB 102/IAS 2 Inventories requires separate disclosure of: a. the amount of inventories recognised as an expense. b. the carrying amount of inventories pledged as security for loans. c. the circumstances that led to a reversal of a previous write down of inventories. *d. All of these options. General Feedback: Learning objective 5.9: identify the disclosure requirements of AASB 102/IAS 2. 32. AASB 102/IAS 2 requires disclosure of which of the following?

a. II and III only. b. I, II and III only. c. II, III and IV only. *d. I, II, III and IV. General Feedback: Learning objective 5.9: identify the disclosure requirements of AASB 102/IAS 2.

5.12

Chapter 6: Property, plant and equipment Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 6: Property, plant and equipment Multiple choice questions 1. Property, plant and equipment includes items that: a. have no physical substance. b. are held for resale. *c. held for rental to others. d. are expected to be used up within one year from date of purchase. General Feedback: Learning objective 6.1: discuss the nature of property, plant and equipment. 2. Property, plant and equipment are assets that: a. are expected to be used up within twelve months from purchase date. *b. are physical in nature. c. are held for resale within the current period. d. have a remaining productive life of less than one year. General Feedback: Learning objective 6.1: discuss the nature of property, plant and equipment. 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: a. the asset has been fully paid for in cash. b. the asset has been sent to the buyer. c. it is a physical asset. *d. the cost can be reliably measured. General Feedback: Learning objective 6.2: outline the recognition criteria for initial recognition of property, plant and equipment. 4. The cost of property, plant and equipment is only recognised if the cost of the asset can be reliably measured and: a. the asset has been paid for in cash. b. the asset has been received by the purchaser. c. the cost is not directly attributable to the asset. *d. it is probable that future economic benefits associated with the asset will flow to the entity.

5.2

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 6.2: outline the recognition criteria for initial recognition of property, plant and equipment. 5. An entity acquired an item of machinery in exchange for a motor vehicle. The carrying amount of the machinery is $7 000 and its fair value is $10 000. The journal entry to record the acquisition of the machinery will include: a. a loss on acquisition of $3 000. *b. a gain on sale of $3 000. c. proceeds on sale of motor vehicle of $3 000. d. proceeds on sale of machinery of $3 000. General Feedback: Learning objective 6.3: explain how to measure property, plant and equipment on initial recognition. 6. An entity acquired an item of plant in exchange for a forklift. The carrying amount of the plant is $10 000 and its fair value is $14 000. The journal entry to record the acquisition of the forklift will include: a. a loss on acquisition of $4 000. b. proceeds on sale of forklift of $4 000. *c. a gain on sale of $4 000. d. proceeds on sale of plant of $4 000. General Feedback: Learning objective 6.3: explain how to measure property, plant and equipment on initial recognition. 7. For the purposes of recognising property, plant and equipment assets the acquisition date is the date: a. the consideration is paid. *b. on which the acquirer obtains control of the asset. c. the contract to exchange assets is signed. d. on which the contract to acquire the asset becomes unconditional. General Feedback: Learning objective 6.3: explain how to measure property, plant and equipment on initial recognition.

5.3

Chapter 6: Property, plant and equipment Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Bob Limited acquired a number of assets for $400000 cash. The fair values of the assets on date of acquisition were: building $320000, furniture and fittings $80000. The correct journal entry to record this acquisition is: a. DR Property, plant and equipment $400 000 CR Cash $400 000 b. DR Property, plant and equipment $440 CR Cash $440 *c. DR Building $320 DR Furniture and fittings $80 CR Cash $400 000 d. DR Building $352000 DR Furniture $88 CR Cash $440 General Feedback: Learning objective 6.3: explain how to measure property, plant and equipment on initial recognition. 9. Costs that may be included in the cost of acquisition of property, plant and equipment assets include:

a. I. b. II. *c. III. d. IV. General Feedback: Learning objective 6.3: explain how to measure property, plant and equipment on initial recognition. 10. AASB 116/IAS 116 notes various directly attributable costs, including: a. Professional fees. b. Cost of sale preparation. c. Cost of employee benefits. *d. All of the options are correct. General Feedback: Learning objective 6.3: explain how to measure property, plant and equipment on initial recognition.

5.4

Testbank to accompany Financial reporting 4e by Loftus et al.

11. After an item of property, plant and equipment has been initially recognised at cost it may be measured using which measurement method? a. liquidation value. *b. revaluation. c. accrual. d. net realisable value. General Feedback: Learning objective 6.4: explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition. 12. Subsequent to the initial recognition of an asset an entity has a choice on the measurement basis to be adopted. The entity can choose either: *a. cost or revaluation. b. cash or accrual. c. tax or accounting. d. current or non-current. General Feedback: Learning objective 6.4: explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition. 13. When applying the revaluation measurement model to assets, the model: a. may only be applied to current assets. b. is applied permanently and may not be changed. *c. applies to the entire class of non-current assets. d. is applied to individual assets within a class of non-current assets. General Feedback: Learning objective 6.4: explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition. 14. Depreciation is a process that is designed to: *a. allocate the cost of an asset across its useful life to an entity. b. reduce the carrying amount of an asset to reflect the diminishing fair value of the asset. c. spread the cost of an asset across a period no greater than 10 years. d. reflect the change in value of an asset due to advances in technology.

5.5

Chapter 6: Property, plant and equipment Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation. 15. Under AASB 116/IAS 16, the depreciation charge for a period reflects: a. the fall in the re-sell value of the asset across the period. *b. the consumption of economic benefits over the period. c. a change in the market value of the asset that has occurred over the period. d. a reduction in the estimated fair value of the asset across the period. General Feedback: Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation. 16. Under the cost model, after initial recognition of a property, plant and equipment asset the item must be carried at its: *a. cost less accumulated depreciation and less accumulated impairment losses. b. historical cost. c. initial cost. d. net present value. General Feedback: Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation. 17. Kangaroo Limited applies the straight-line method of depreciation to its non-current assets. The cost of the buildings was $400000, the depreciable amount is $350000, the residual value is $50 000 and the useful life is 5 years. The annual depreciation charge is: *a. $70000. b. $80000. c. $40000. d. $150 000. General Feedback: Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation. 18. Jacob Limited acquired an item of plant with an expected useful life of 5years. Expected total production output over this period was: Year 1, 40 000 units; Year 2, 40000 units; Year 3, 32000 units;

5.6

Testbank to accompany Financial reporting 4e by Loftus et al.

Year 4, 28000 units Year 5, 20 000 units. The plant cost $200000 and associated installation costs amounted to $50000 and residual value is $20 000. The amount of depreciation charged in the first year is: *a. $57 500. b. $62 500. c. $67 500. d. $92 000. General Feedback: Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation.

19. If a residual value is determined to be of a material amount the entity is required to review the residual value: a. monthly. *b. at the end of each reporting period. c. when completing interim reports. d. at no time. General Feedback: Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation. 20. Which of the following statements regarding depreciation is incorrect? a. Depreciation is an allocation of the cost of the asset over its useful life. b. The depreciation method used should best reflect the pattern of usage of the asset over its useful life. *c. Depreciation is a measure of the asset's change in value. d. Depreciation is a systematic allocation of the cost of the asset over its useful life. General Feedback:

5.7

Chapter 6: Property, plant and equipment Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 6.5: explain the cost model of measurement and understand the nature and calculation of depreciation. 21. A company depreciates an item of machinery using the straight-line method. The asset was revalued upwards after two years of use. The remaining useful life of four years and the residual value are determined to remain the same. Which of the following relationships reflects the effect of the revaluation on the prospective depreciation of the machinery? a. Depreciation rate = Same; Annual depreciation expense = Same. b. Depreciation rate = Higher; Annual depreciation expense = Higher. *c. Depreciation rate = Same; Annual depreciation expense = Higher. d. Depreciation rate = Higher; Annual depreciation expense = Same. General Feedback: Learning objective 6.6: explain the revaluation model of measurement. 22. AASB 116/IAS 16 Property, Plant and Equipment requires revaluations to be applied to: a. all assets on an individual basis. *b. assets on a class-by-class basis. c. individual current assets only. d. individual non-current assets only. General Feedback: Learning objective 6.6: explain the revaluation model of measurement. 23. Use the following information to answer this question. The draft statement of financial position for Paterson Ltd as at 30 June 2024 discloses the following: Machinery (at cost) $750 000 Less Accumulated depreciation 400 000 $350 000 On the same date, Paterson Ltd assessed the fair value of the machinery to be $400 000. The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straightline method. In accordance with AASB116/IAS 16 Property, Plant and Equipment, the journal entries necessary to record the revaluation of machinery (ignoring any tax effect) at 30 June 2024 is:

*a. b. c. © John Wiley and Sons Australia, Ltd 2022

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Testbank to accompany Financial reporting 4e by Loftus et al.

d. General Feedback: Learning objective 6.6: explain the revaluation model of measurement. 24. Hillston Limited had an existing revaluation surplus in respect to an item of plant that has now been derecognised. The appropriate journal entry to transfer the surplus to retained earnings would include: *a. CR Retained earnings. b. CR Asset revaluation surplus. c. DR Gain on revaluation - OCI. d. DR Retained earnings. General Feedback: Learning objective 6.6: explain the revaluation model of measurement. 25. The resulting gain or loss from the sale of a non-current asset is: a. recognised in other comprehensive income, normally with separate disclosure of income and the carrying amount of the asset. b. recognised in other comprehensive income, normally on a net basis. *c. recognised in current period profit or loss, normally on a net basis. d. recognised in current period profit or loss, normally with separate disclosure of income and the carrying amount of the asset. General Feedback: Learning objective 6.7: account for derecognition. 26. Speedy Limited acquired furniture and fittings on 1 July 2021 for $45 000. The estimated useful life of the furniture and fittings at acquisition date was 8 years and the residual value was $2 000. The company sold all the furniture and fittings on 1 January 2027 for $15 000. The journal entry to reflect the sale is:

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Chapter 6: Property, plant and equipment Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. General Feedback: Learning objective 6.7: account for derecognition. 27. Orange Limited acquired a tractor 1 July 2021 for $100 000. The estimated useful life of the furniture and fittings at acquisition date was 10 years and the residual value was $20 000. The company sold tractor on 1 July 2024 for $80 000. The journal entry to reflect the sale is:

*a.

b. c. d. General Feedback: Learning objective 6.7: account for derecognition. 29. AASB 116/IAS 16 requires which of the following disclosures for each class of property, plant and equipment? a. The type of deprecation methods used. b. The useful lives or the depreciation rates used. c. Whether the class of assets is valued using the cost or revaluation method. *d. All of the options are correct. General Feedback: Learning objective 6.8: outline the disclosure requirements of AASB 116/IAS 16.

5.10

Chapter 7: Intangible assets Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 7: Intangible assets Multiple Choice Questions 1. Market capitalisation may be greater than book value for many reasons, including: a. Accountants in general apply the historical cost method for assets, as opposed to fair value. b. Accounting standards specifically exclude the recognition of skilled staff. c. Customer satisfaction is considered to be valuable but is not measured in the statement of financial position. *d. All of the options are correct. General Feedback: Learning objective 7.1: explain the need for an accounting standard on intangible assets 2. Which of the following assets meets the identifiability criteria for recognition as an identifiable intangible asset that can be recorded as acquired in a business combination? *a. Royalty agreements. b. Customer base. c. Continuing development programs. d. Strong and favourable supplier relations. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 3. AASB 138/IAS 38 Intangibles requires that an asset meet which of the following criteria to be classified as an identifiable intangible? I. It arises from a contractual or legal right. II. It is separable from the entity. III. Its cost must be reliably measurable. IV. Its fair value must be able to be reliably measured. a. I or IV only. *b. I or II only. c. II or III only. d. I or III only. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 4. Items such as market knowledge, effective advertising programs, fundraising capabilities and trained staff are NOT regarded as assets because they:

7.2

Testbank to accompany Financial reporting 4e by Loftus et al.

a. are monetary items. *b. are not controlled by the entity. c. cannot be reliably measured. d. are too difficult to manage. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 5. A key characteristic that separates intangible assets from assets such as property, plant and equipment is: a. length of useful life. b. separability. c. reliability. *d. lack of physical substance. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 6. 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. Newspaper mastheads. b. Customer service capability. c. Outstanding credit ratings. d. Presence in geographic locations. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 7. The three key characteristics of intangible assets are:

a. I, II and III b. I, III, and IV

7.3

Chapter 7: Intangible assets Not for distribution in full. Instructors may assign selected questions in their LMS.

c. III, IV, and V *d. II, III, and V General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 8. Goodwill is distinguished from other intangible assets due to which of the following characteristic? a. monetary nature. b. physical substance. *c. identifiability. d. separability. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 9. AASB 138/IAS 38 Intangibles, requires goodwill to only be recognised as an asset if it: a. is internally generated. *b. is acquired as part of a business combination. c. does not exceed its internally recorded cost. d. arises as a result of creating new assets within the normal business operations. General Feedback: Learning objective 7.2: explain the key characteristics of an intangible asset. 10. The recognition criteria that an asset must meet before it may be recognised and presented in the financial statements includes: *a. results from a past event. b. having physical substance. c. relevant to management decision making. d. verifiability. General Feedback: Learning objective 7.3: discuss the recognition criteria applied to intangible assets. 11. Jameson Limited was involved in a mining exploration business. It commenced a project to design more efficient opal detecting equipment. The following expenditures occurred during the financial year ended 30 June 2024: researcher's salary $60 000; research consumables $20 000; re-development of the

7.4

Testbank to accompany Financial reporting 4e by Loftus et al.

detecting equipment $50 000; final adjustments to the detecting equipment $17 500. The amount to be capitalised by this company as an intangible asset, for the 2024 financial year, is: a. $80 000. b. $130 000. c. $17 500. *d. $67 500. General Feedback: Learning objective 7.3: discuss the recognition criteria applied to intangible assets. 12. Penrith 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: September: researcher salaries $20000; October: research materials $30000; November: redevelopment of the extrusion plant $300000; December: final adjustments to the extrusion plant $35000. The amount to be expensed by Penrith Limited at the end of the financial year, 31is: a. $20 000. *b. $50 000. c. $300 000. d. $285 000. General Feedback: Learning objective 7.3: discuss the recognition criteria applied to intangible assets. 13. Paragraph 63 of AASB 138/IAS 38 Intangibles, prohibits the recognition of the following internally generated identifiable intangibles:

a. I. b. II. *c. III. d. IV. General Feedback: Learning objective 7.3: discuss the recognition criteria applied to intangible assets.

7.5

Chapter 7: Intangible assets Not for distribution in full. Instructors may assign selected questions in their LMS.

14. Unless acquired under a business combination, intangible assets must be initially measured using which of the following measurement approaches? a. Net present value. *b. Cost. c. Diminishing value. d. Fair value. General Feedback: Learning objective 7.4: discuss the measurement at initial recognition of intangible assets. 15. The cost of an intangible asset is comprised of the fair value of the consideration: a. plus indirect costs. b. less directly attributable costs. *c. plus directly attributable costs. d. less legal costs incurred in the purchase. General Feedback: Learning objective 7.4: discuss the measurement at initial recognition of intangible assets. 16. AASB 138/IAS 38 Intangibles, defines the 'research' phase of the generation of an asset as: a. the use of research findings to create a substantially improved product. b. using knowledge to materially improve a manufacturing device. c. the application of knowledge to a design for new production processes. *d. original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge or understanding. General Feedback: Learning objective 7.4: discuss the measurement at initial recognition of intangible assets. 17. The original and planned investigation undertaken with the prospect of gaining new knowledge is described as: *a. research. b. exploration. c. development. d. investigation. General Feedback: Learning objective 7.4: discuss the measurement at initial recognition of intangible assets.

7.6

Testbank to accompany Financial reporting 4e by Loftus et al.

18. The measurement of fair value is determined in accordance with AASB 13 Fair Value Measurement. AASB 13 defines fair value as one that has all of the following conditions:

a. I. *b. II. c. III. d. IV. General Feedback: Learning objective 7.4: discuss the measurement at initial recognition of intangible assets. 19. 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 cost? a. The initial cost of the asset given up. *b. The fair value of the asset given up. c. The replacement value of the asset received. d. The carrying amount of the asset received. General Feedback: Learning objective 7.4: discuss the measurement at initial recognition of intangible assets. 20. Under AASB 138/IAS 38 Intangibles, an intangible asset with a finite 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 systematically over its useful life. General Feedback: Learning objective 7.5: Describe how to amortise intangible assets. 21. AASB 138/IAS 38 Intangibles, requires that an intangible asset with an indefinite life: a. be amortised across its useful life. b. be amortised across a period of no greater than 10 years.

7.7

Chapter 7: Intangible assets Not for distribution in full. Instructors may assign selected questions in their LMS.

c. not be amortised in periods when it has been properly maintained. *d. not be subject to amortisation charges. General Feedback: Learning objective 7.5: Describe how to amortise intangible assets. 22. An active market is defined in Appendix A of AASB 13/IFRS 13 as a market: a. of money held and assets to be received in fixed or determinable amounts of money. *b. in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. c. with an identifiable non-monetary assets without physical substance. d. with the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction. General Feedback: Learning objective 7.6: explain the accounting for intangible assets subsequent to initial recognition. 23. Under the revaluation method of measuring an intangible, the asset is carried at fair value and subject to charges for: a. interest. b. inflation. c. improvements. *d. amortisation and impairment. General Feedback: Learning objective 7.6: explain the accounting for intangible assets subsequent to initial recognition. 24. Cost incurred on intangible assets subsequent to initial expenditure are: a. recognised directly in the revaluation reserve account. b. transferred to the retained earnings account. *c. expensed immediately. d. capitalised. General Feedback: Learning objective 7.6: explain the accounting for intangible assets subsequent to initial recognition

7.8

Testbank to accompany Financial reporting 4e by Loftus et al.

25. AASB 138/IAS 38 Intangibles requires which of the following items to be disclosed in relation to intangibles? a. Whether the life of the intangible is finite or indefinite. b. The amortisation method used for intangibles with a finite life. c. A reconciliation of the beginning and ending carrying amounts for the reporting period. *d. All of the options are required disclosures. General Feedback: Learning objective 7.7: Discuss the disclosures required for intangible assets. 26. Which of the following statements is correct? *a. Separate disclosures are required for internally generated intangibles. b. AASB 138/IAS 38 requires disclosures about an entity's intangible assets to be made on an asset by asset basis. c. Disclosures about the useful lives of intangibles are required with explanations being required where assets are assessed to have finite useful lives. d. Where the cost model is used, specific disclosures are required including assumptions made on estimating fair values. General Feedback: Learning objective 7.7: Discuss the disclosures required for intangible assets.

7.9

Chapter 8: Impairment of assets Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 8: Impairment of assets Multiple choice questions 1. If an entity does not expect to recover the carrying amount of an asset, the entity has incurred a/an: a. depreciation expense. b. amortisation cost. c. loss on disposal. *d. impairment loss. General Feedback: Learning objective 8.1: explain the nature and purpose of an impairment test. 2. How often must an impairment test be applied to tangible assets? a. Every two years. b. At the end of each financial year. *c. Only when there is an indication that the asset may be impaired. d. At each reporting date including interim reporting dates such as half-year. General Feedback: Learning objective 8.2: explain when an impairment test should be undertaken. 3. 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, III and IV only. *d. I, II and IV only. General Feedback: Learning objective 8.2: explain when an impairment test should be undertaken. 4. Goodwill acquired under a business combination is subject to an impairment test every: *a. year. b. two years. c. three years.

8.2

Testbank to accompany Financial reporting 4e by Loftus et al.

d. five years. General Feedback: Learning objective 8.2: explain when an impairment test should be undertaken. 5. An impairment loss occurs when: a. the asset has a residual value of zero. b. the recoverable amount of an asset exceeds the carrying amount. *c. the carrying amount of an asset exceeds the recoverable amount. d. the recoverable amount of an asset exceeds its initial cost. General Feedback: Learning objective 8.3: outline the components of the impairment test. 6. As per AASB 136/IAS 36 Impairment of Assets, the recoverable amount test requires an entity to compare the fair value of an asset less costs to sell, with: a. its disposal value. *b. its value in use. c. the amount obtainable from the sale of the asset. d. the costs directly attributable to the liquidation of the asset. General Feedback: Learning objective 8.3: outline the components of the impairment test. 7. Which of the following identifies an impairment of an asset and describes the appropriate accounting treatment using the cost model as per AASB 136/IAS 36 Impairment of Assets? a. Impairment identified: Carrying amount of an asset is less than its recoverable amount. Appropriate accounting treatment: Asset is written up to its recoverable amount. b. Impairment identified: Carrying amount of an asset is less than its recoverable amount. Appropriate accounting treatment: No change to the asset value. *c. Impairment identified: Carrying amount of an asset is greater than its recoverable amount. Appropriate accounting treatment: Asset is written down to its recoverable amount. d. Impairment identified: Carrying amount of an asset is greater than its recoverable amount. Appropriate accounting treatment: No change to the asset value. General Feedback: Learning objective 8.3: outline the components of the impairment test.

8.3

Chapter 8: Impairment of assets Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Billy Limited estimated that it would receive future cash flows from the use of equipment as follows: End of Year 1 $20 000. End of Year 2 $70 000. End of Year 3 $40 000. End of Year 4 $30 000. The discount rate was determined as 5%. The 'value in use' of the equipment is: *a. $141 774. b. $160 000. c. $142 727. d. unable to determine from the information provided. General Feedback: Learning objective 8.3: outline the components of the impairment test.

9. When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. Recoverable amount is the higher of: a. initial cost: and, fair value. b. original cost: and, net present value. c. value in use: and, original cost. *d. fair value less costs to sell: and, value in use. General Feedback: Learning objective 8.3: outline the components of the impairment test. 10. AASB 136/IAS 36 Impairment of Assets defines value in use as the: a. amount obtainable from the 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 the disposal of an asset or cash-generating unit, excluding finance costs and income tax expense. *d. present value of the future cash flows expected to be derived from an asset or cash-generating unit.

8.4

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 8.3: outline the components of the impairment test. 11. Bob Limited expected future cash flows from the use of plant as follows: End of Year 1 $14 000; End of Year 2 $15 000; End of Year 3 $12 000. The discount rate was determined as 9%. The value in use of the plant is: a. $41 000. *b. $34 735. c. $37 862. d. $Nil. General Feedback: Learning objective 8.3: outline the components of the impairment test.

12. Joanne Limited expected future cash flows from the use of plant as follows: End of Year 1 $35 000; End of Year 2 $70 000; End of Year 3 $45 000; End of Year 4 $20 000. The discount rate was determined as 9%. The value in use of the plant is: a. $170 000. b. $163 462. *c. $155 474. d. $Nil. General Feedback: Learning objective 8.3: outline the components of the impairment test.

8.5

Chapter 8: Impairment of assets Not for distribution in full. Instructors may assign selected questions in their LMS.

13. When an asset is measured using the cost model, an impairment loss is: a. set off against the balance of revenue. b. recognised directly in equity. c. accumulated in a separate 'accumulated impairment losses' account. *d. included in the balance of the accumulated depreciation and impairment losses account for that asset. General Feedback: Learning objective 8.4: describe how to account for an impairment loss for a single asset. 14. Under the cost model, an impairment loss would be recorded as: a. DR Sales, CR Impairment loss. *b. DR Impairment loss, CR Accumulated depreciation and impairment losses. c. DR Accumulated impairment losses, CR Impairment loss. d. DR Accumulated impairment losses, CR Asset revaluation (equity). General Feedback: Learning objective 8.4: describe how to account for an impairment loss for a single asset. 15. When an asset is measured using the revaluation model, any impairment loss is treated as: *a. a revaluation decrement. b. a revaluation increment. c. an off-set against depreciation expense. d. an addition to depreciation expense. General Feedback: Learning objective 8.4: describe how to account for an impairment loss for a single asset. 16. Young Limited recognised an impairment loss of $20 000 against a cash-generating unit containing the following assets: buildings $40 000; roads $100 000; equipment $60 000. The net carrying amount of the roads after allocation of the impairment loss is: *a. $90 000. b. $45 000. c. $99 000. d. $36 000. General Feedback:

8.6

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 8.5: describe how to account for an impairment loss for a cash-generating unit.

17. At reporting date Pop Fizz Limited estimated an impairment loss of $50 000 against its single cashgenerating unit. The company had the following assets: headquarters building $200 000; plant $120 000; equipment $40 000. The net carrying amount of the headquarters building after allocation of the impairment loss is: a. $103 333. b. $150 000. c. $160 000. *d. $172 222. General Feedback: Learning objective 8.5: describe how to account for an impairment loss for a cash-generating unit.

18. Cherry Pty Ltd has two cash generating units. CGU A had a carrying amount of $1 700 and value in use of $1 750. CGU B has a carrying amount of $1 900 and a value in use of $1 800. The carrying amount of the head office assets is $1 400. CGU A and B utilise the head office services equally. The impairment loss for CGU A is: a. $0. *b. $650. c. $800. d. $1 350. General Feedback:

8.7

Chapter 8: Impairment of assets Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 8.5: describe how to account for an impairment loss for a cash-generating unit.

19. Compass Limited estimated an impairment loss of $2 500 000 against its single cash-generating unit. The company had the following assets: headquarters building $3 000 000; plant $1 600 000; equipment $1 400 000. The net carrying amount of the plant after allocation of the impairment loss is: a. $Nil. b. $933 333. *c. $816 667. d. $1 750 000. General Feedback: Learning objective 8.5: describe how to account for an impairment loss for a cash-generating unit.

20. In relation to the reversal of an impairment loss of an individual asset, which of the following is incorrect? 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. 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. c. 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. d. If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss.

8.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 8.6: explain when an impairment loss can be reversed and how to account for it. 21. When assessing the recoverable amount 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. a decrease in market interest rates during the period. b. a significant decrease in the asset's market value during the period. c. an adverse effect on the entity from significant changes that have taken place. d. internal reporting sources indicate that the economic performance of the asset will not be as good as expected. General Feedback: Learning objective 8.6: explain when an impairment loss can be reversed and how to account for it. 22. During 2021, Lisa Limited estimated that the carrying amount of goodwill was impaired by $30 000. In 2022, the company reassessed goodwill and determined that the goodwill initially acquired still existed. The appropriate accounting treatment in 2022 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. increase goodwill by an adjustment to retained earnings. *d. ignore the reversal as it is prohibited by AASB 136/IAS 36 Impairment of Assets. General Feedback: Learning objective 8.6: explain when an impairment loss can be reversed and how to account for it. 23. AASB 136/IAS 36 Impairment of Assets requires which of the following disclosures for each class of assets: I The line item(s) 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 accumulated impairment account. *a. I, II and III only. b. I, II, III and IV. c. II and IV only.

8.9

Chapter 8: Impairment of assets Not for distribution in full. Instructors may assign selected questions in their LMS.

d. IV only. General Feedback: Learning objective 8.7: identify the disclosures required in relation to impairment of assets. 24. Paragraph 130 of AASB 136/IAS 36 requires that for each material impairment loss recognised or reversed during the period, an entity must also disclose: a. for an individual asset: the nature of the asset. b. the amount of any impairment loss recognised or reversed. c. the events and circumstances that led to the recognition or reversal of the impairment loss. *d. All of the options are correct. General Feedback: Learning objective 8.7: identify the disclosures required in relation to impairment of assets. 25. 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 in other comprehensive income during the period. 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 and III only. *c. I, II, III and IV d. I and II only. General Feedback: Learning objective 8.7: identify the disclosures required in relation to impairment of assets.

8.10

Chapter 9: Provisions, contingent liabilities and contingent assets Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 9: Provisions, contingent liabilities and contingent assets Multiple choice questions 1. Which of the following is an example of a provision falling within the scope of AASB 137/IAS 37? a. Accruals. *b. Onerous contracts. c. Insurance contracts. d. Employee benefits. General Feedback: Learning objective 9.1: describe the purpose of AASB 137/IAS 37. 2. AASB 137/IAS 37 prescribes the accounting and disclosure for all provisions, contingent liabilities and contingent assets except for: a. those arising for insurance entities from contracts with policyholders. b. those relating to employee benefits. c. those relating to leases. *d. none. All of these are exceptions to AASB 137/IAS 37. General Feedback: Learning objective 9.1: describe the purpose of AASB 137/IAS 37. 3. 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 of Directors as to the level of bonuses to be paid at the end of the financial period. c. a historical pattern of performing a major overhaul of plant and machinery every three years. d. the declaration of a dividend by directors which is yet to be approved at a meeting of shareholders. General Feedback: Learning objective 9.2: outline the concept of a provision and how it is distinguished from other liabilities. 4. Which of the following statements is correct? a. A constructive obligation is an example of an equitable obligation. *b. An equitable obligation is an example of a present obligation. c. A present obligation is an example of a legal obligation.

9.2

Testbank to accompany Financial reporting 4e by Loftus et al.

d. A legal obligation is an example of a constructive obligation. General Feedback: Learning objective 9.2: outline the concept of a provision and how it is distinguished from other liabilities. 5. Which of the following statements is correct? a. A contingent liability is a type of liabilities. b. A provision is a type of contingent liabilities. *c. A provision is a type of liabilities. d. Contingent liabilities and provisions are types of liabilities. General Feedback: Learning objective 9.2: outline the concept of a provision and how it is distinguished from other liabilities. 6. The uncertainty that exists in relation to provisions is one of: a. timing. b. amount. *c. timing or amount. d. timing and amount. General Feedback: Learning objective 9.2: outline the concept of a provision and how it is distinguished from other liabilities. 7. An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a: a. accrual. b. provision. c. liability. *d. contingent liability. General Feedback: Learning objective 9.3: outline the concept of a contingent liability and how it is distinguished from other liabilities.

9.3

Chapter 9: Provisions, contingent liabilities and contingent assets Not for distribution in full. Instructors may assign selected questions in their LMS.

8. A contingent liability is defined as a:

*a. I. b. II. c. III. d. IV. General Feedback: Learning objective 9.3: outline the concept of a contingent liability and how it is distinguished from other liabilities. 9. 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 because the possibility of an outflow in settlement is remote. *c. recognised in the notes to the financial statements unless 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. General Feedback: Learning objective 9.3: outline the concept of a contingent liability and how it is distinguished from other liabilities. 10. AASB 137/IAS 37 requires provisions to be recognised when: I there has been a past event. II an entity has a present obligation. III the amount of the obligation can be reliably estimated. IV it is possible that an outflow of resources will be required to settle the obligation. *a. I, II and III. b. II, III and IV. c. I, III and IV.

9.4

Testbank to accompany Financial reporting 4e by Loftus et al.

d. I, II and IV. General Feedback: Learning objective 9.4: explain when a provision should be recognised. 11. Liabilities which do not meet the recognition criteria and where the possibility of an outflow of economic resources 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. General Feedback: Learning objective 9.4: explain when a provision should be recognised. 12. Banana Limited estimated the future cash outflows over the next three years relating to settlement of warranty obligations would be as follows: 1 year from now: $30 000. 2 years from now: $42 000. 3 years from now: $43 000. Banana Limited calculates that the present value of the total expected future cash outflow, using a discount rate of 8%, is: *a. $ 97 921. b. $ 105 754. c. $ 106 481. d. $115 000. General Feedback: Learning objective 9.5: explain how a provision, once recognised, should be measured. 13. Under AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when providing for a future event such as the clean-up of a construction site at the end of a long-term project, gains and other cash inflows that are expected to arise on the sale of assets related to the clean-up, must be: a. set-off against the provision for the clean-up. b. recognised as a deferred asset. *c. measured separately of the provision. d. recognised directly in equity in the period in which the cash inflows arise. General Feedback: © John Wiley and Sons Australia, Ltd 2022

9.5

Chapter 9: Provisions, contingent liabilities and contingent assets Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 9.5: explain how a provision, once recognised, should be measured. 14. Gordon Limited is a manufacturer of playground equipment. Gordon provides its customers with four-year warranties from the date of sale. Past experience shows that there will be some claims under the warranties. The appropriate treatment of this item under AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets is to: *a. recognise the best estimate of costs as a provision. b. disclose in the notes, but do not recognise in the financial statements. 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. General Feedback: Learning objective 9.5: explain how a provision, once recognised, should be measured. 15. Accountants are required to use professional judgement in determining the best estimate of provisions. Which of the following is an example of when judgement is required? a. Assessing the likely consideration that will be required to settle the obligation. b. Determining if various scenarios may arise. c. Determining when the consideration is likely to be settled. *d. All of these options. General Feedback: Learning objective 9.5: explain how a provision, once recognised, should be measured. 16. An entity sells goods under warranty and past experience shows that minor defects account for 11% of sales and major defects account for 3% of sales. If minor defects were detected in all goods sold the repair costs would be $260 000, and if major defects were detected in all goods sold the repair costs would be $990 000. The expected value of the warranty costs is: a. $ 0. b. $27 000. *c. $54 500. d. $99 000. General Feedback: Learning objective 9.5: explain how a provision, once recognised, should be measured. 17. The costs under an onerous contract are measured as:

9.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. the lower of cost or net market value. b. the present value method using a risk-free discount rate. c. the unavoidable costs of meeting the obligations discounted by reference to market yields at reporting date. *d. the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil the contract. General Feedback: Learning objective 9.6: apply the definitions, recognition and measurement criteria for provisions and contingent liabilities to practical situations. 18. Bob Ltd has provided a guarantee to a bank in relation to a loan provided to Bill Ltd. Brown Ltd is solvent and shows no signs of defaulting on the loan. The treatment of the bank guarantee in the records of Bob Ltd is to: a. do nothing. *b. recognise a contingent liability. c. recognise a liability. d. recognise a provision. General Feedback: Learning objective 9.6: apply the definitions, recognition and measurement criteria for provisions and contingent liabilities to practical situations. 19. AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets provides the definition of a/an as: 'a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it'. a. future operating loss. b. deferred liability. *c. onerous contract. d. present obligation. General Feedback: Learning objective 9.6: apply the definitions, recognition and measurement criteria for provisions and contingent liabilities to practical situations. 20. Allister Limited announced its plans for a major restructuring of its operations. Under AASB 137/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.

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Chapter 9: Provisions, contingent liabilities and contingent assets Not for distribution in full. Instructors may assign selected questions in their LMS.

*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. General Feedback: Learning objective 9.6: apply the definitions, recognition and measurement criteria for provisions and contingent liabilities to practical situations. 21. Under AASB 137/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 future losses and recognise as a provision. b. determine the future losses and charge them directly against retained earnings. *c. not recognise such items in the financial statements. d. determine the future losses and discount them to present value. General Feedback: Learning objective 9.6: apply the definitions, recognition and measurement criteria for provisions and contingent liabilities to practical situations. 22. AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets, defines a as: '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. deferred liability. *b. contingent asset. c. deferred asset. d. contingent liability. General Feedback: Learning objective 9.7: outline the concept of a contingent asset. 23. At the end of the financial period, Bramble 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 approximately three months' time. How should Bramble Limited recognise this situation when preparing the financial statements? *a. 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. b. Do not recognise or disclose in the financial statements as the possibility of receiving damages is remote. c. Recognise as an asset in the financial statements as the receipt of damages is probable.

9.8

Testbank to accompany Financial reporting 4e by Loftus et al.

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. General Feedback: Learning objective 9.7: outline the concept of a contingent asset. 24. As per AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the appropriate treatment for a contingent asset in the financial statements of an entity is: a. recognition in the financial statements, and note disclosure. b. recognition in the financial statements, but no further disclosure in the notes. c. do not recognise in the financial statements, and do not disclose in the notes. *d. disclosure of information in the notes, but do not recognise in the financial statements. General Feedback: Learning objective 9.7: outline the concept of a contingent asset. 25. In respect to a contingent liability, AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets, requires disclosure of: *a. an estimate of its financial effect. b. any increase in the contingent liability during the period. c. the carrying amount at the beginning and end of the period. d. an indication of the uncertainties about the amount and timing of expected inflows. General Feedback: Learning objective 9.8: describe the disclosure requirements for provisions, contingent liabilities and contingent assets. 26. For each class of provision, AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires an entity to disclose the following information: I. Comparative information. II. Unused amounts reversed during the period. III. Additional provisions made during the period. IV. The carrying amount at the beginning and end of the period. V. A brief description of the nature of the obligation and the expected timing. a. I, II, and III only. *b. II, III, IV and V only. c. II, III and IV only. d. I, III, IV and V only. General Feedback:

9.9

Chapter 9: Provisions, contingent liabilities and contingent assets Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 9.8: describe the disclosure requirements for provisions, contingent liabilities and contingent assets. 27. Entities are not required to disclose which of the following in relation to provisions? *a. Comparatives. b. Amounts used during the period. c. The effect of any change in the discount rate used. d. Carrying amounts of provisions at the beginning of the period. General Feedback: Learning objective 9.8: describe the disclosure requirements for provisions, contingent liabilities and contingent assets. 28. Paragraph 23 of AASB 3/IFRS 3 states that the requirements of AASB 137/IAS 37 do not apply in determining which contingent liabilities to recognise at the acquisition date. The only conditions for recognising the contingent liability are: a. it must be a present obligation arising from past events. b. its fair value can be measured reliably. c. possible obligations are not recognised in a business combination. *d. all of these options are conditions. General Feedback: Learning objective 9.9: compare the requirements of AASB 3/IFRS 3 regarding contingent liabilities with those of AASB 137/IAS 37. 29. The similarities and differences between AASB 3/IFRS 3 and AASB 137/IAS 37 include:

*a. I. b. II. c. III. d. IV.

9.10

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 9.9: compare the requirements of AASB 3/IFRS 3 regarding contingent liabilities with those of AASB 137/IAS 37.

9.11

Chapter 10: Employee benefits Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 10: Employee benefits Multiple choice questions 1. Which of the following types of employee benefits are not covered by AASB 119/IAS 19? a. Long service leave. b. Wages. *c. Share-based payments. d. Annual leave. General Feedback: Learning objective 10.1: outline the scope, purpose and principles of accounting for employee benefits under AASB 119/IAS 19. 2. An enterprise bargaining agreement results from an entity entering into an agreement with: a. the government. b. its employees. c. the relevant industry body. *d. the relevant employee union. General Feedback: Learning objective 10.1: outline the scope, purpose and principles of accounting for employee benefits under AASB 119/IAS 19. 3. Employee benefits can arise from which of the following? I. government legislation. II. specific industry arrangements. III. workplace agreements between an entity and its employees. IV. enterprise bargaining agreements between an entity and the relevant employee union. a. I and II only . b. I, II and IV only. c. I, II and III only. *d. I, II, III and IV. General Feedback: Learning objective 10.1: outline the scope, purpose and principles of accounting for employee benefits under AASB 119/IAS 19. 4. Which of the following types of employee benefits may be conditional upon the continuation of employment?

10.2

Testbank to accompany Financial reporting 4e by Loftus et al.

a. Annual leave. b. Maternity leave. *c. Long service leave. d. Accumulating non-vesting sick leave. General Feedback: Learning objective 10.1: outline the scope, purpose and principles of accounting for employee benefits under AASB 119/IAS 19. 5. Which of the following is not an example of a short-term employee benefit? *a. Termination payments. b. Wages and salaries. c. Sick leave and annual leave. d. Bonuses and profit-sharing arrangements. General Feedback: Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave. 6. Salary sacrificing refers to: a. an employer withholding a portion of an employee's salary or wages for sub-standard performance. *b. an employee electing to forego some of their salary or wages in return for other non-cash benefits. c. an employee not receiving a portion of their salary and wages due to the fact that predetermined performance targets have not been met. d. an employee foregoing some of their wages because leave entitlements such as sick leave have been overdrawn. General Feedback: Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave. 7. An entity is required to recognise a liability for short-term compensated absences that are: a. non-vesting only. *b. accumulating and vesting. c. non-accumulating and vesting. d. non-accumulating and non-vesting .

10.3

Chapter 10: Employee benefits Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave. 8. Under AASB 119/IAS 19, leave entitlements that may be carried forward to a future financial period if unused are referred to as: a. non-accumulating paid absences. b. accumulating unpaid absences. *c. accumulating paid absences. d. non-accumulating unpaid absences. General Feedback: Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave. 9. Dotty 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 2024 the balance in the provision for annual leave account was $14 082. Details of each employee's leave entitlement at 30 June 2025 are as follows:

There are 260 work days in a year. On 1 July each year all employees receive a 4% 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 2025 is: a. $13 480. b. $12 962. c. $14 645. *d. $15 839. General Feedback:

10.4

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave.

10. Polly 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 2024 the balance in the provision for annual leave account was $14 028. Details of each employee's leave entitlement at 30 June 2025 are as follows:

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. $28 500. b. $19 334. c. $27 143. d. $20 301. General Feedback:

10.5

Chapter 10: Employee benefits Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave.

11. Northern Ltd employs 8 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 2024 Maggie Winton left the company and was paid out her untaken leave entitlements. Maggie had 15 days leave owing at 1 July 2024 and took 6 days leave between 1 July and 31 December 2024. Her salary at the time of her departure was $90 000. There are 260 work days in a year. On 1 July each year all employees receive a 4% wage rise. There are no other wage rises given during the year. The gross entitlement owing to Maggie Winton on 31 December 2024 was: a. $5 538 b. $5 649 c. $6 638 *d. $7 728. General Feedback: Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave.

12. Marlyn Ltd has 10 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 2024 the accumulated untaken leave was 16 days in total. During the year ended 30 June 2025 a total of 50 days sick leave was taken, of which 8 days were unpaid leave. Of the accumulated untaken leave at 30 June 2025 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 2025 is:

10.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. $6 300. b. $8 100. *c. $6 075. d. Nil, as the leave is non-vesting. General Feedback: Learning objective 10.2: prepare journal entries to account for short-term liabilities for employee benefits, such as wages and salaries, sick leave and annual leave.

13. 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 employer bears the risk in a defined benefit plan, whereas the employee bears the risk in a defined contribution plan. c. the fund 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. General Feedback: Learning objective 10.3: compare defined benefit and defined contribution post-employment benefit plans. 14. Which of the following statements regarding defined contribution plans is incorrect? a. They include fixed contributions paid by the employer to an employee's superannuation fund. b. The amount of the contribution is normally based on a percentage of the employee's wages. c. The amount received by employees upon their retirement is dependent on the level of contributions made and the return earned by the fund on its investment. *d. The employer has a legal obligation to pay further contributions if the fund does not hold sufficient assets to pay it members.

10.7

Chapter 10: Employee benefits Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 10.3: compare defined benefit and defined contribution post-employment benefit plans. 15. In the event that an employer pays an amount to the defined contribution fund that is less than the amount payable: a. an asset is to be recognised at the end of the reporting period for the unpaid contributions. b. an asset is to be recognised to the extent that the entity is entitled to a refund or a reduction in future contributions. *c. a liability is to be recognised at the end of the reporting period for the unpaid contributions. d. a liability is to be recognised to the extent that the entity is entitled to a refund or a reduction in future contributions. General Feedback: Learning objective 10.4: prepare entries to account for expenses, assets and liabilities arising from defined contribution post-employment plans. 16. The key steps involved in accounting by the employer for a defined benefit post-employment fund in accordance with AASB 119/IAS 19 include: I. Determining the deficit or surplus of the fund. II. Determining the amount of the net defined benefit liability (asset). III. Determining the amounts to be recognised in profit or loss. IV. Determining the remeasurements of the net defined benefit liability (asset) to be recognised in other comprehensive income. a. I, II and III only. b. I, III and IV only. c. II, III and IV only. *d. I, II, III and IV. General Feedback: Learning objective 10.5: prepare entries to record expenses, assets and liabilities arising from defined benefit post-employment plans. 17. 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 past service cost. b. the asset ceiling. *c. the current service cost. d. an actuarial gain or loss.

10.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 10.5: prepare entries to record expenses, assets and liabilities arising from defined benefit post-employment plans. 18. 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. an expense for the unpaid contributions. *c. a liability for the unpaid contributions. d. a gain for the unpaid contributions. General Feedback: Learning objective 10.5: prepare entries to record expenses, assets and liabilities arising from defined benefit post-employment plans. 19. Benefits paid to members of a defined benefit post-employment fund are based on: I. investment returns generated by the fund. II. remuneration levels while employed. III. number of years of service. IV. the level of employer contributions made to the fund. a. I and II only. b. II and IV only. *c. II and III only. d. III and IV only. General Feedback: Learning objective 10.5: prepare entries to record expenses, assets and liabilities arising from defined benefit post-employment plans. 20. Actuarial gains or losses can arise from: I. Experience adjustments. II. Employee services provided in future periods. III. The withdrawal of changes to a defined benefit plan. IV. Changes to actuarial assumptions. a. I and II. *b. I and IV. c. II and III. d. III and IV. General Feedback:

10.9

Chapter 10: Employee benefits Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 10.5: prepare entries to record expenses, assets and liabilities arising from defined benefit post-employment plans. 21. AASB 119/IAS 19 requires an entity to record a liability for long service leave: a. when the leave is taken by the employee. b. in a consistent manner from year to year. c. when the employee becomes legally entitled to the leave. *d. as the employee provides service to the entity even though they may have no legal entitlement to the leave. General Feedback: Learning objective 10.6: explain how to measure and record other long-term liabilities for employment benefits, such as long service leave. 22. AASB 119/IAS 19 adopts the projected unit credit method for the measurement of long service leave obligations. This method requires the entity to: a. calculate the future value of the expected payments that will result from employee services provided in the future. *b. calculate the present value of the expected future payments that will result from employee services provided to date. c. provide for the amount of long service leave that is planned to be taken by employees within the next 12 months. d. commence providing for long service leave once employees have completed 10 years of service. General Feedback: Learning objective 10.6: explain how to measure and record other long-term liabilities for employment benefits, such as long service leave. 23. An entity is required to make several estimates when measuring the liability for long service leave. These estimates include: a. the number of employees expected to become eligible for long service leave. b. the projected wages and salaries at the time the long service leave is expected to be paid. c. when the leave will be taken by eligible employees. *d. all of the above. General Feedback: Learning objective 10.6: explain how to measure and record other long-term liabilities for employment benefits, such as long service leave.

10.10

Testbank to accompany Financial reporting 4e by Loftus et al.

24. 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. c. current salaries / (1+inflation rate)n. d. projected salaries x (1+inflation rate)n. General Feedback: Learning objective 10.6: explain how to measure and record other long-term liabilities for employment benefits, such as long service leave. 25. Which of the following does not fall within the definition of a termination benefit? *a. Employee resignation. b. Voluntary redundancy accepted by an employee. c. An entity's decision to termination employment before an employee's normal retirement date. d. An entity's decision to undertake a redundancy program due to restructuring. General Feedback: Learning objective 10.7: explain when a liability should be recognised for termination benefits and how it should be measured. 26. When an entity decides to terminate an employee's employment, 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. The plan identifies the location, function or job classification, the number of employees whose services are to be terminated, and the expected completion date. b. Actions required to complete the plan indicate that significant changes to the plan are unlikely. c. The plan establishes the termination benefits payable in sufficient detail to enable employees to determine the type and amount of benefits they will receive. *d. All of the above. General Feedback: Learning objective 10.7: explain when a liability should be recognised for termination benefits and how it should be measured. 27. Which of the following obligations do not arise from past services provided by an employee? *a. Termination benefits. b. Post-employment benefits.

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Chapter 10: Employee benefits Not for distribution in full. Instructors may assign selected questions in their LMS.

c. Short-term compensated absences. d. Other long-term employee benefits. General Feedback: Learning objective 10.7: explain when a liability should be recognised for termination benefits and how it should be measured. 28. An entity is able to record a provision for termination benefits when it: a. has developed a formal plan for redundancies. b. has decided to undertake a termination program. *c. can no longer withdraw the offer of the benefits. d. has received Board approval for the termination benefits. General Feedback: Learning objective 10.7: explain when a liability should be recognised for termination benefits and how it should be measured.

10.12

Chapter 11: Leases Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 11: Leases Multiple choice questions 1. The preface to AASB 16/IFRS 16 Leases states that the new standard will: a. enhance disclosures required of entities. b. provide a greater transparency of a lessee's financial leverage and capital employed. c. result in a more faithful representation of a lessee's assets and liabilities. *d. all of the above options. General Feedback: Learning objective 11.1: explain the purpose of AASB 16/IFRS 16. 2. AASB 16/IFRS 16 defines a lease as: a. a contract, or part of a contract, that conveys the right to transfer ownership of an asset (the underlying asset) for a period of time in exchange for consideration. *b. a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. c. a contract that conveys the right for the lessor to obtain substantially all of the economic benefits of the identified asset. d. a contract, or part of a contract, that conveys the right to transfer a liability for a period of time in exchange for an asset. General Feedback: Learning objective 11.1: explain the purpose of AASB 16/IFRS 16. 3. Which of the following is included within the scope of AASB 16/IFRS 16? a. Lease agreements for motion picture films. b. Lease agreements to explore for minerals. *c. Lease agreement for an oil refinery. d. Lease agreements for biological assets. General Feedback: Learning objective 11.1: explain the purpose of AASB 16/IFRS 16. 4. A finance lease is defined in AASB 16/IFRS 16 as: a. a lease that is not classified as an operating lease. b. a lease that does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

11.2

Testbank to accompany Financial reporting 4e by Loftus et al.

c. a rental agreement of less than 12 months' duration. *d. a lease that transfers substantially all the risks and rewards incidental to ownership of an underlying asset. General Feedback: Learning objective 11.3: classify lease arrangements from the perspective of the lessor. 5. The rewards of ownership of an asset include the possibilities of gains related to: I. Realisation of a residual value. II. Benefits obtained from profitable operation over the underlying asset's economic life. III. Appreciation in the asset's value. a. I only. b. I and II only. *c. I, II and III. d. III only. General Feedback: Learning objective 11.3: classify lease arrangements from the perspective of the lessor. 6. Which of the following is not an example of a risk of ownership of an asset? *a. Gains on the future sale of the asset. b. Changing economic conditions. c. Idle capacity. d. Technical obsolescence. General Feedback: Learning objective 11.3: classify lease arrangements from the perspective of the lessor. 7. At the inception date of the lease, the fair value of the asset measures: a. the present value of the total benefits remaining with the lessor. *b. the present value of the total benefits associated with the asset. c. the total of the lease payments over the term of the lease. d. none of these options. General Feedback: Learning objective 11.3: classify lease arrangements from the perspective of the lessor. 8. At the commencement of the lease agreement the lessor recognises the balance of the lease receivable as the:

11.3

Chapter 11: Leases Not for distribution in full. Instructors may assign selected questions in their LMS.

a. the nominal value of the lease payments receivable from the lessee. b. the present value of the lease payments receivable from the lessee. c. the present value of the residual value of the asset. *d. the present value of the lease payments receivable from the lessee and the present value of the unguaranteed residual value. General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor. 9. Which of the following is not one of the steps in the classification process of a finance lease? a. Analyse the lease to determine what risks and rewards are transferred from the lessor to the lessee. b. Identify the potential risks and rewards associated with the ownership of the asset. c. Assess whether the risks and rewards have been substantially passed to the lessee. *d. Determine what risks and rewards stay with the owner of the asset. General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor. 10. According to AASB 16/IFRS 16 Leases, because lease payments are received from the lessee over the lease term, the receipts need to be divided into the following components:

*a. I. b. II. c. III. d. IV. General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor. 11. Billy Limited and Bob Limited enter into a finance lease agreement with the following terms: · lease term is 4 years · estimated economic life of the leased asset is 5 years · 4 × annual rental payments of $15 000 each payable in advance · residual value at the end of the lease term is not guaranteed by the lessee

11.4

Testbank to accompany Financial reporting 4e by Loftus et al.

· interest rate implicit in the lease is 8%. On inception date, the present value of the lease payments is: *a. $53 656. b. $38 656. c. $49 682. d. $60 000. General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor.

12. John Limited and Knox Limited enter into a finance lease agreement with the following terms: · lease term is 4 years · estimated economic life of the leased asset is 5 years · 4 × annual rental payments of $20 000 each payable in advance · residual value at the end of the lease term is not guaranteed by the lessee · interest rate implicit in the lease is 8%. The journal entry recorded by the lessor when the first lease payment is received would be:

*a. b.

c. d. General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor. 13. On 30 June 2025, Cross Ltd leased a motor vehicle to Bow Ltd. Cross Ltd had purchased the motor vehicle on that day for its fair value of $66 242. The lease agreement cost Cross $1 470 to have drawn up and requires Bow to reimburse Cross for annual insurance costs of $2 000. The amount recorded as a lease receivable by Cross Ltd at the inception of the lease is: a. $64 242. b. $68 242. © John Wiley and Sons Australia, Ltd 2022

11.5

Chapter 11: Leases Not for distribution in full. Instructors may assign selected questions in their LMS.

*c. $67 712. d. $69 712. General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor. Workings = $66 242 fair value + 1 470 lease agreement = $67 712. 14. Which of the following is an appropriate journal entry for the initial recognition by a financier lessor of a finance lease arrangement? a. DR Leased asset: CR Cash *b. DR Lease receivable: CR Asset c. DR Lease receivable: CR Lease liability d. DR Leased asset: CR Cash/accounts payable General Feedback: Learning objective 11.4: Account for finance leases from the perspective of a financier lessor. 15. AASB 16/IFRS 16 requires manufacturer and dealer lessors to recognise selling profit or loss: *a. at the commencement of the lease. b. at the end of the lease. c. systematically over the lease term. d. 50% at commencement of the lease and 50% at the end of the lease. General Feedback: Learning objective 11.5: account for finance leases from the perspective of a manufacturer/dealer lessor. 16. Which of the following is an appropriate journal entry for the initial recognition by a manufacturer/dealer lessor? a. DR Leased asset: CR Cash b. DR Cash: CR Sales revenue c. DR Lease liability: CR Leased asset *d. DR Leased receivable: CR Sales revenue General Feedback: Learning objective 11.5: account for finance leases from the perspective of a manufacturer/dealer lessor.

11.6

Testbank to accompany Financial reporting 4e by Loftus et al.

17. Which of the following is an appropriate journal entry for the recognition by a lessor of the first payment received under an operating lease arrangement? a. DR Lease expense: CR Cash b. DR Leased liability: CR Lease income *c. DR Cash: CR Lease income d. DR Lease expense: CR Deferred initial direct costs General Feedback: Learning objective 11.6: account for operating leases from the perspective of a lessor. 19. On 1 July 2021, Ball Ltd leased a network server from Point Ltd. The server had cost Point Ltd $32 000 on the same day. The lease agreement cost Point Ltd $2 400 to set up and included the following:

The journal entry recorded by the lessor to recognise the initial direct costs incurred would be:

a. b. c. *d. General Feedback: Learning objective 11.6: account for operating leases from the perspective of a lessor. 20. On 1 July 2021, One Ltd leased a network server from Short Ltd. The server had cost Short Ltd $32 000 on the same day. The lease agreement cost Short Ltd $2 400 to set up and included the following:

11.7

Chapter 11: Leases Not for distribution in full. Instructors may assign selected questions in their LMS.

The journal entry recorded by the lessor for the annual recognition of the initial direct costs would be:

*a. b. c. d. General Feedback: Learning objective 11.6: account for operating leases from the perspective of a lessor. 21. Under AASB 16/IFRS 16 Leases, lessees are required to disclose which of the following? I. Interest expense on lease liabilities II. Income from subleasing right-of-use assets III. Gains or losses arising from sale and leaseback transaction IV. Expenses relating to short-term leases a. I, II and III only. b. I, III and IV only. c. II, III and IV only. *d. I, II, III and IV only. General Feedback: Learning objective 11.7 Summarise the disclosure requirements regarding leases. 22. In relation to finance leases, the following information must be disclosed separately in the financial statements of lessors: I. The undiscounted lease payments to be received on an annual basis. II. A reconciliation of the undiscounted lease payments to the net investment in the lease. III. A reconciliation of the discounted unguaranteed residual value. IV. The depreciation charge for each class of right-of-use asset.

11.8

Testbank to accompany Financial reporting 4e by Loftus et al.

*a. I, II and III only. b. I, III and IV only. c. II, III and IV only. d. II and IV only. General Feedback: Learning objective 11.7 Summarise the disclosure requirements regarding leases.

11.9

Chapter 12: Financial instruments Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 12: Financial instruments Multiple choice questions 1. Financial instruments are separated into two categories. They are: a. financial and non-financial. b. derivative and non-derivative. c. primary and secondary. *d. primary and derivative. General Feedback: objective 12.1: define a financial instrument. 2. Which of the following are regarded as financial instruments? I. Deposits held by a financial institution. II. Ordinary shares. III. Raw materials inventories. IV. Property, plant and equipment. V. Accounts receivable and accounts payable. a. I, II, IV and V only. b. II, III and IV only. *c. I, II and V only. d. I, IV and V only. General Feedback: objective 12.1: define a financial instrument. 3. Which of the following statements relating to financial instruments is not correct? a. They may relate to singular instruments or a combination of instruments. *b. A convertible note with the conversion option to issue shares is a financial liability. c. Primary instruments include receivables and payables. d. Derivative instruments include forward exchange contracts. General Feedback: objective 12.1: define a financial instrument. 4. Which of the following would not be regarded as a financial instrument? a. cash. b. bank overdraft.

12.2

Testbank to accompany Financial reporting 4e by Loftus et al.

c. notes payable. *d. equipment. General Feedback: objective 12.1: define a financial instrument. 5. Which of the following items is classified as a financial asset? a. Patents. *b. accounts receivable. c. inventory. d. Property, plant and equipment. General Feedback: objective 12.2: define a financial asset. 6. The AASB 132/IAS 32 Financial Instruments: Presentation definition of a financial asset does not include any asset that is: a. an equity instrument of another entity. b. a contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. c. a contract that will be settled in the entity's own equity instruments. *d. a contractual obligation to deliver cash or another financial asset to another entity. General Feedback: objective 12.2: define a financial asset. 7. According to AASB 132/IAS 32 Financial Instruments: Presentation, which of the following items would be regarded as a financial liability? a. Ordinary shares held in another entity. b. A contractual right to exchange under potentially favourable conditions, an option to purchase shares below the market price. c. The right of a depositor to obtain cash from a financial institution with which it has deposited cash. *d. A contract that is a non-derivative for which the entity is obliged to deliver a variable number of its own equity instruments. General Feedback: objective 12.3: define a financial liability.

12.3

Chapter 12: Financial instruments Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Examples of financial liabilities include: a. bank overdraft. b. unsecured convertible notes. c. debentures issued. *d. all of these are examples of financial liabilities. General Feedback: objective 12.3: define a financial liability. 9. The definition of a derivative requires which of the following characteristics to be met? I. Its value must change in response to a change in an underlying variable such as a specified interest rate, foreign exchange rate, credit rating or commodity price. II. It must require no initial net investment or an additional net investment that is smaller than would be required for other types of contracts with similar responses to changes in market factors. III. It is to be settled at a future date. IV. It must be settled on a net basis. a. I, III and IV. *b. I, II and III c. I, II and IV. d. II, III and IV. General Feedback: objective 12.4: explain what is meant by a derivative and an embedded derivative. 10. Which of the following is not an example of a derivative financial instrument? a. A forward exchange contract. b. A futures contract. c. An option contract. *d. A commercial bill contract. General Feedback: objective 12.4: explain what is meant by a derivative and an embedded derivative. 11. Smith Corporation Limited buys an option that entitles it to purchase 8 000 shares in JD Limited at $4 per share at any time in the next 6 months. The derivative financial instrument in this transaction is the: a. shares in JD Limited. b. shares in Smith Corporation Limited. *c. option priced at $4.

12.4

Testbank to accompany Financial reporting 4e by Loftus et al.

d. price of the shares in JD Limited after 6 months have elapsed. General Feedback: objective 12.4: explain what is meant by a derivative and an embedded derivative. 12. Company X issues preference shares to Company Y, the terms of which entitle Company Y to redeem the preference shares for cash if Company X's revenues fall below a specified level. From Company X's perspective, the preference shares are: a. a financial asset. b. an equity instrument. c. a compound financial instrument. *d. a financial liability. General Feedback: objective 12.5: define an equity instrument. 13. A contract with a residual interest in the assets of an entity after deducting all of its liabilities is referred to as a (an): *a. equity instrument. b. derivative instrument. c. primary instrument. d. secondary instrument. General Feedback: objective 12.5: define an equity instrument. 14. The classification of a financial instrument on the statement of financial position of an entity is governed by the principle of: a. legal form. b. forfeiture. c. net present value. *d. substance over form. General Feedback: objective 12.6: distinguish between financial liabilities and equity instruments. 15. Which of the following is an example of an adverse effect of financial liabilities?

12.5

Chapter 12: Financial instruments Not for distribution in full. Instructors may assign selected questions in their LMS.

a. Periodic payments on the financial instruments, such as dividends, may be recognised as a borrowing cost and therefore reduce the entity's profits. b. A financial institution breaching regulations imposed on it to maintain a minimum level of capital. c. An entity breaching their obligations under a debt covenant relating to its solvency. *d. All of the above. General Feedback: objective 12.6: distinguish between financial liabilities and equity instruments. 16. Company Z issued convertible notes 4 years ago and accounted for them as a compound financial instrument. Complete the following sentence. At the end of the four year period the portion of the component that relates to the notes which have been converted . a. liability, remains as a liability. b. equity, is transferred to profit and loss. *c. liability, is transferred to equity. d. liability, is transferred to profit or loss. General Feedback: objective 12.7: explain the concept of a compound financial instrument. 17. Company F has convertible notes on issue. These notes are convertible to ordinary shares of the Company after 3 years. The distributions made to the note holders by Company F are classified by Company F as follows: a. interest expense. b. dividends distributed. c. indeterminable based on the information provided. *d. a portion representing interest expense and a portion representing dividends distributed. General Feedback: objective 12.7: explain the concept of a compound financial instrument. 18. The appropriate accounting treatment for incremental costs directly attributable to an equity transaction that would otherwise have been avoided is to: *a. deduct from equity, net of tax. b. add to equity, net of tax. c. expense in the period incurred. d. defer as a contingent asset.

12.6

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: objective 12.8: explain the consequential effects of financial instrument. classifications for dividends, interest and gains and losses. 19. Which of the following options is not mentioned in paragraph 35 of AASB 132/IAS 32 that relate to a financial liability to be recognised as income or expense in profit or loss: a. Dividends. b. Interest. c. Gains and losses. *d. Sale of equipment. General Feedback: objective 12.8: explain the consequential effects of financial instrument. classifications for dividends, interest and gains and losses. 20. Which of the following statements is incorrect? a. Trade debtors and trade creditors are treated as unconditional financial assets and financial liabilities. b. Forward contracts covered by AASB 9/IFRS 9 are recognised as financial assets or financial liabilities at the commitment date. *c. Planned future transactions are to be recognised as asset or liabilities at the date the plan is finalised. d. Option contracts covered by AASB 9/IFRS 9 are recognised as financial assets or financial liabilities when the holder or writer becomes a party to the contract. General Feedback: objective 12.9: describe the criteria for the recognition of a financial asset or financial liability. 21. A contract that requires delivery of a financial asset within a time frame generally established by regulation or convention in the marketplace is what type of purchase? a. normal purchase. *b. regular way purchase. c. abnormal purchase. d. irregular way purchase. General Feedback: objective 12.9: describe the criteria for the recognition of a financial asset or financial liability.

12.7

Chapter 12: Financial instruments Not for distribution in full. Instructors may assign selected questions in their LMS.

22. When an entity has a legally enforceable right to set off the recognised amounts of a financial asset and financial liability and it intends to settle on a net basis, it: a. can write off both the asset and the liability. b. is not entitled to offset the asset and liability. *c. may offset the financial asset and liability. d. need not present the asset, the liability or the net amount in its financial statements. General Feedback: objective 12.10: describe the conditions under which a financial asset and a financial liability must be offset. 23. Which of the following are examples where the conditions for offsetting a financial asset and a financial liability are generally not satisfied? I. Financial assets pledged as collateral for non-recourse financial liabilities. II. The combination of a number of different financial instruments to emulate the features of a single financial instrument. III. Financial liabilities for obligations expected to be recovered from a third party such as an insurance company. a. I and III only. b. II and III only. c. I and II only. *d. I, II and III. General Feedback: objective 12.10: describe the conditions under which a financial asset and a financial liability must be offset. 24. Company P and Company Q regularly trade between each other. They have agreed to offset their accounts receivable and accounts payable and settle them on a net basis. At 30 June Company P has accounts receivable of $10 000 owing from Company Q but also has accounts payable of $40 000 owing to Company Q. Which of the following statements is correct? a. The net payable from Company P is $30 000. b. The net receivable from Company Q is $40 000. c. Company P offsets the account payable of $10 000 against the account receivable and presents the net amount of $30 000 in their financial statements as accounts receivable. *d. Company Q offsets the account payable of $10 000 against the account receivable and presents the net amount of $30 000 in their financial statements as accounts receivable. General Feedback: objective 12.10: describe the conditions under which a financial asset and a financial liability must be offset.

12.8

Testbank to accompany Financial reporting 4e by Loftus et al.

25. An example of the derecognition of a financial asset is: a. the entity no longer has control of the asset. b. the expiration of the contractual rights to cash flows. c. the asset no longer qualifies for recognition in the statement of financial position. *d. All of the above. General Feedback: objective 12.11: describe the requirements for the derecognition of a financial asset or a financial liability. 26. Derecognition of a financial liability occurs when: *a. the contractual obligation has been settled due to the transfer of a cash consideration. b. there is an extension to the terms of the contractual obligation. c. the contractual rights to cash flows has expired. d. the entity obtains control of the financial instrument. General Feedback: objective 12.11: describe the requirements for the derecognition of a financial asset or a financial liability. 27. AASB 9/IFRS 9 requires financial assets to be initially measured at: a. fair value. *b. fair value plus directly attributable costs. c. historical cost. d. historical cost plus directly attributable costs. General Feedback: objective 12.12: Outline the requirements for the initial measurement of a financial asset or a financial liability. 28. AASB 9/IFRS 9 requires subsequent measurement of a financial asset at amortised cost when two tests have been satisfied. Those two tests are: a. fair value test; impairment test. b. fair value test; business model test. c. fair value test; cash flows characteristics test. *d. business model test; cash flows characteristics test.

12.9

Chapter 12: Financial instruments Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: objective 12.13: Outline the requirements for the subsequent measurement of a financial asset. 29. AASB 9/IFRS 9 There are generally three financial asset categories a. holdings of debt instruments. b. holdings of derivatives. c. holdings of equity instruments. *d. all of the above. General Feedback: objective 12.13: Outline the requirements for the subsequent measurement of a financial asset. 30. Which of the following events provide objective evidence that a financial asset has been impaired: I. A default in interest payments. II. The borrower enters into bankruptcy. III. The downgrade of an entity's credit rating. IV. Significant financial difficulty of the issuer. *a. I, II and IV only. b. II, III and IV only. c. I, III and IV only. d. II and IV only. General Feedback: objective 12.14: describe the expected loss model for impairment of financial assets. 31. AASB 9/IFRS 9 provides examples of financial liabilities which are not required to be subsequently measured at amortised costs. These examples include: a. financial guarantees contracts. b. commitments to provide loans below market interest rates. c. holdings of derivatives. *d. all of the above. General Feedback: objective 12.15: outline the requirements for the subsequent measurement of a financial liability. 32. The default subsequent measurement base for financial liabilities is: a. fair value using the effective interest rate.

12.10

Testbank to accompany Financial reporting 4e by Loftus et al.

*b. amortised cost using the effective interest rate. c. fair value through profit or loss. d. amortised cost through profit or loss. General Feedback: objective 12.15: outline the requirements for the subsequent measurement of a financial liability. 33. The disclosure requirements for financial assets that have been reclassified at amortised cost include:

a. I. b. II. *c. III. d. IV. General Feedback: objective 12.16: summarise the disclosures required for financial instruments. 34. The risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss is referred to as: a. market risk. *b. credit risk. c. liquidity risk. d. interest rate risk. General Feedback: objective 12.16: summarise the disclosures required for financial instruments.

12.11

Chapter 13: Income taxes Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 13: Income taxes Multiple choice questions 1. In general, the differences between the accounting treatment and the income tax treatment of a particular item is that the accounting treatment is based on: a. the income tax legislation. b. cash flows. c. cash flows adjusted for depreciation charges. *d. accrual accounting and is subject to the requirements of accounting standards. General Feedback: Learning objective 13.1: discuss the need for an accounting standard on income taxes. 2. Current tax consequences of business operations are recognised as: *a. a current liability for income tax payable. b. a non-current liability for taxes payable. c. a contingent liability for taxes payable. d. a deferred liability for income tax payable. General Feedback: Learning objective 13.2: discuss differences in accounting treatments and taxation treatments for a range of transactions and events. 3. If a company has not yet paid their existing tax payable they will recognise a in the statement of financial position. a. current tax asset. b. non-current asset. *c. current tax liability. d. non-current liability. General Feedback: Learning objective 13.2: discuss differences in accounting treatments and taxation treatments for a range of transactions and events. 4. What is the accounting treatment for 'deferred development costs'? a. A tax deduction on cash payment. *b. An asset, then expensed via amortisation. c. An expense on accrual.

13.2

Testbank to accompany Financial reporting 4e by Loftus et al.

d. Not deductible. General Feedback: Learning objective 13.2: discuss differences in accounting treatments and taxation treatments for a range of transactions and events. 5. What is the taxation treatment for 'Fines and penalties? a. A tax deduction on cash payment. b. An expense when payable. c. An expense on accrual. *d. Not deductible. General Feedback: Learning objective 13.2: discuss differences in accounting treatments and taxation treatments for a range of transactions and events. 6. The assumption made for the tax effect method of accounting for a company's income tax is: a. income tax expense is equal to income tax payable. *b. income tax expense is not equal to current tax liability. c. an accounting balance sheet and a tax balance sheet are the same. d. a tax balance sheet is prepared according to accounting standards. General Feedback: Learning objective 13.3: explain that some transactions and events have both current and future tax consequences. 7. The following information relates to Smith Limited for the year ended 30 June 2022. Accounting profit before income tax (after all expenses have been included) $230000 Entertainment expenses (not tax deductible) 12000 Depreciation of machinery (accounting) 20000 Depreciation of machinery (tax) 25000 Annual leave expense (not a tax deduction until the leave is paid) 10000 Income tax rate 30% On the basis of this information the current tax liability is: a. $72 000. b. $61 500. c. $67 500. *d. $74 100. General Feedback:

13.3

Chapter 13: Income taxes Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 13.4: Calculate and account for current income tax expense and liability. Workings: (230 000 accounting profit +12 000 entertainment expenses + 20 000 depreciation of machinery (accounting) - 25 000 depreciation of machinery (tax) + 10 000 Annual leave expense) * 30% = 67,500. 8. Alpha Limited has an accounting profit before tax of $525 000. All of the following items have been included in the accounting profit: depreciation of plant $50 000 (tax deductible depreciation is $70 000); entertainment expenses $25 000 (non-deductible for tax purposes); Long service leave expense provided $15 000 (no employee took long service leave during the year). The tax rate is 30%. The amount of current tax liability is: *a. $163 500. b. $168 000. c. $136 500. d. $151 500. General Feedback: Learning objective 13.4: Calculate and account for current income tax expense and liability. Workings: (525 000 accounting profit +25 000 entertainment expenses + 50 000 depreciation of plant (accounting) - 70 000 depreciation of plant (tax) + 15 000 Long service leave expense) * 30% = 163 500. 9. Comrade Limited has an asset with a carrying value of $70 000. The tax base of this asset is $40 000. The tax rate is 30%. The deferred tax item to be recognised by Comrade Limited is: a. Deferred tax liability of $30 000. b. Deferred tax asset of $30 000. c. Deferred tax asset of $9 000. *d. Deferred tax liability of $9 000. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 10. Differences between the carrying amounts of an entity's net assets determined under accounting standards and accrual accounting, and the tax bases of those net assets determined under the Income Tax Assessment Act 1997, are known as: a. tax losses. *b. temporary differences. c. permanent differences. d. the current income tax liability. General Feedback:

13.4

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 12.5: calculate and account for deferred income tax. 11. A taxable temporary difference leads to the payment of: a. more tax in the future and gives rise to a deferred tax asset. b. less tax in the future and gives rise to a deferred tax asset. c. less tax in the future and gives rise to a deferred tax liability. *d. more tax in the future and gives rise to a deferred tax liability. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 12. A deductible temporary difference leads to the payment of: *a. less tax in the future and gives rise to a deferred tax asset. b. more tax in the future and gives rise to a deferred tax asset. c. more tax in the future and gives rise to a deferred tax liability. d. less tax in the future and gives rise to a deferred tax liability. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 13. Sanders Limited has a machine which cost $400 000 and has been depreciated by $80 000 to date. The accumulated depreciation for tax purposes is $160 000 and the company tax rate is 30%. The tax base of this asset is: a. $48 000. b. $96 000. *c. $240 000. d. $320 000. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 14. At which time are deferred tax accounting adjustments to be recorded? a. At balance date. *b. At the end of each month. c. When each transaction arises. d. When the cash flows from each transaction occur.

13.5

Chapter 13: Income taxes Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 15. AASB 112/IAS 12 Incomes Taxes requires deferred tax assets and liabilities to be measured at the tax rates that: a. prevail at the reporting date. b. applied at the end of the reporting period. c. applied at the beginning of the reporting period. *d. are expected to apply when the asset is realised or the liability is settled. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 16. Banana Limited has a product warranty liability valued at $16000. The product warranty costs are not tax deductible until paid out to customers. The company tax rate is 30%. The company has: *a. a deductible temporary difference of $16000. b. a taxable temporary difference of $16 000. c. a deferred tax asset of $16 000. d. a future deductible amount of $0. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 17. The following information was extracted from the financial records of Peach Limited: Equipment purchased on 1 July 2024 for $200000 (accounting depreciation 15% straight line; tax depreciation 10% straight line). If the company tax rate is 30%, the deferred tax item that will be recorded by Peach Limited at 30 June 2025 is: a. CR Deferred tax asset $3 000. *b. DR Deferred tax asset $3 000. c. CR Deferred tax liability $3 000. d. DR Deferred tax liability $3 000. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 18. Light Limited accrued $50 000 for employees' long service leave in the year ended 30 June 2021. This item will not be tax deductible until it is paid in approximately 5 years' time. Assuming the company tax rate is 30%, Light Limited must record the following tax effect as a balance date adjustment:

13.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. DR Deferred tax liability $15 000. *b. DR Deferred tax asset $15 000. c. CR Deferred tax asset $15 000. d. CR Deferred tax liability $15 000. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 19. A company commenced business on 1 July 2024. On 30 June 2025, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information: Assets Liabilities Cash $20 000 Accounts payable $50 000 Inventories 60 000 Provision for annual leave 8 000 Plant 300 000 Accumulated depreciation (60 000) Additional information: The plant was acquired on 1 July 2024. Depreciation for accounting purposes was 20% (straight-line method), while 10% (straight-line) was used for tax purposes. The tax rate is 30%. Using the following worksheet, determine the deferred tax asset and deferred tax liability.

The deferred tax liability is: *a. $0. b. $2 400. c. $9 000. d. $11 400. General Feedback: Learning objective 12.5: calculate and account for deferred income tax.

13.7

Chapter 13: Income taxes Not for distribution in full. Instructors may assign selected questions in their LMS.

20. A company commenced business on 1 July 2024. On 30 June 2025, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information: Assets Liabilities Cash $20 000 Accounts payable $50 000 Inventories 60 000 Provision for annual leave 8 000 Plant 300 000 Accumulated depreciation (60 000) Additional information: The plant was acquired on 1 July 2024. Depreciation for accounting purposes was 20% (straight-line method), while 10% (straight-line) was used for tax purposes. The tax rate is 30%. Using the following worksheet, determine the deferred tax asset and deferred tax liability.

The deferred tax asset is: a. $0. b. $2 400. c. $9 000. *d. $11 400. General Feedback: Learning objective 12.5: calculate and account for deferred income tax. 21. In jurisdictions where the impairment of goodwill is not tax deductible, AASB 112/IAS 12 Income Taxes: a. allows the recognition of a deferred tax item in relation to goodwill. *b. does not permit the application of deferred tax accounting to goodwill. c. requires that any deferred tax items in relation to goodwill be recognised directly in equity. © John Wiley and Sons Australia, Ltd 2022

13.8

Testbank to accompany Financial reporting 4e by Loftus et al.

d. requires that any deferred tax items for goodwill be deducted from the carrying amount of goodwill. General Feedback: Learning objective 12.5: calculate and account for deferred income tax.

22. On 1 November 2024, the company rate of income tax was changed from 35% to 30%. At the previous reporting date (30 June 2024) Sanders Limited had the following tax balances: Deferred tax assets $33 500 Deferred tax liabilities $18 000 What is the impact of the tax rate change on income tax expense? a. Increase $2 583. b. Decrease $2 583. c. Decrease $2 214. *d. Increase $2 214. General Feedback: Learning objective 13.6: account for changes in income tax rates. 23. Jets Limited had the following deferred tax balances at reporting date: Deferred tax assets $38 000 Deferred tax liabilities $57 000 Effective from the first day of the next financial period, the company rate of income tax was reduced from 40% to 35%. The adjustment to income tax expense to recognise the impact of the tax rate change is: a. DR $2 714. b. CR $2 714. c. DR $2 375. *d. CR $2 375. General Feedback:

13.9

Chapter 13: Income taxes Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 13.6: account for changes in income tax rates.

13.10

Chapter 14: Share capital and reserves Not for distribution in full. Instructors may assign selected questions in their LMS.

Multiple choice questions 1. The Conceptual Framework describes equity as a: *a. residual interest in the assets of the entity after deducting all its liabilities. b. residual interest in the equity of the entity after deducting all its liabilities. c. residual interest in the assets of the entity after deducting all its equity. d. residual interest in the equity of the entity after deducting all its assets General Feedback: Learning objective 14.1: Describe the equity of a sole proprietor, partnership and company 2. For-profit companies may be: I Listed II No-liability III Unlimited IV Limited by guarantee *a. I, II, III and IV. b. II and III only. c. I, II and III only. d. II, III and IV only. General Feedback: Learning objective 14.2: identify the different forms of corporate entities. 3. Which of the following statements relating to shares is not correct? a. A share represents an ownership right in a company. b. Each share in a company carries a right to vote for directors of the company. *c. Each share in a company carries a right to share proportionately in all new share issues of a company. d. Each share in a company carries a right to share in the assets on the liquidation of the company. General Feedback: Learning objective 14.3: outline the key features of the corporate structure. 4. The most common form of share capital is the: a. redeemable share b. bonus share.

14.2

Testbank to accompany Financial reporting 4e by Loftus et al.

*c. ordinary share. d. cumulative share. General Feedback: Learning objective 14.4: Explain the nature of share capital and the different types of shares. 5. In respect to a company's issue of shares, an IPO is an: a. Instruments providing options to ordinary shareholders. b. Investment in preference and ordinary shares. c. Investment prospectus for an issue of options. *d. Initial public offering of shares. General Feedback: Learning objective 14.5: account for the initial issue of shares. 6. When a public share issue is made, the offer comes from: *a. the applicant. b. the company issuing the shares. c. the broker handling the share issue for the company. d. the relevant oversight body once it has reviewed the prospectus documentation. General Feedback: Learning objective 14.5: account for the initial issue of shares. 7. Lens Ltd was registered as a corporation on 1 July 2024. On 3 July 2024, Lens Ltd issued a prospectus offering 55 000 ordinary shares at an issue price of $6.00 each, payable $4.00 on application and $2.00 on allotment. Application closed on 1 August 2024 with the company having received applications for 60 000 shares. The shares were allotted on 15 August 2024, with the over-subscription amount being refunded to unsuccessful applicants. All allotment monies were received by 31 August 2024. Following the allotment, the balance in the Share Capital account would be: a. $55 000 CR. *b. $240 000 CR. c. $220 000 DR. d. $360 000 DR. General Feedback: Learning objective 14.5: account for the initial issue of shares.

14.3

Chapter 14: Share capital and reserves Not for distribution in full. Instructors may assign selected questions in their LMS.

8. A company's capital consists of 100 000 ordinary shares issued at $2 and paid to $1 per share. On 1 September, a first call of 50c was made on the ordinary shares. By 30 September, the call money received amounted to $45 000. No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited. On 15 November, the forfeited shares were reissued as paid to $1.50 for a payment of $1 per share. The appropriate cash amount from the reissue was received on 19 November. Costs of reissue amounted to $2 500. The company's constitution provided for any surplus on resale, after satisfaction of unpaid calls, accrued interest and costs, to be returned to the shareholders whose shares were forfeited. The entry to record the forfeiture of shares is:

*a.

b. c. d. General Feedback: Learning objective 14.5: account for the initial issue of shares. 9. A company's capital consists of 100 000 ordinary shares issued at $2 and paid to $1 per share. On 1 September, a first call of 50c was made on the ordinary shares. By 30 September, the call money received amounted to $45 000. No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited. On 15 November, the forfeited shares were reissued as paid to $1.50 for a payment of $1 per share. The appropriate cash amount from the reissue was received on 19 November. Costs of reissue amounted to $1 800. The company's constitution provided for any surplus on resale, after satisfaction of unpaid calls, accrued interest and costs, to be returned to the shareholders whose shares were forfeited. The entry to record the reissue of forfeited shares is:

*a.

14.4

Testbank to accompany Financial reporting 4e by Loftus et al.

b. c. d. General Feedback: Learning objective 14.5: account for the initial issue of shares. 10. A company's capital consists of 100 000 ordinary shares issued at $2 and paid to $1 per share. On 1 September, a first call of 50c was made on the ordinary shares. By 30 September, the call money received amounted to $45 000. No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited. On 15 November, the forfeited shares were reissued as paid to $1.50 for a payment of $1 per share. The appropriate cash amount from the reissue was received on 19 November. Costs of reissue amounted to $2 800. The company's constitution provided for any surplus on resale, after satisfaction of unpaid calls, accrued interest and costs, to be returned to the shareholders whose shares were forfeited. The amount of the surplus payable to the shareholders whose shares were forfeited is: *a. $2 200. b. $5 000. c. $7 800. d. $10 000. General Feedback: Learning objective 14.5: account for the initial issue of shares. 11. If the balance in a forfeited shares account is refundable to the owners of those shares, then the forfeited shares account is classified in the financial statements as: a. income. b. equity. c. expenses. *d. liabilities. General Feedback: Learning objective 14.5: account for the initial issue of shares. 12. The appropriate journal entry to recognise the accounting treatment for share issue costs is:

14.5

Chapter 14: Share capital and reserves Not for distribution in full. Instructors may assign selected questions in their LMS.

a. DR Deferred asset: CR Cash. *b. DR Share capital: CR: Cash. c. DR Cash: CR Deferred asset. d. DR Cash: CR Share capital. General Feedback: Learning objective 14.5: account for the initial issue of shares. 13. How does a bonus issue of shares impact the equity of a company? a. Total equity increases. b. Total equity decreases. c. Only the amount of issued share capital changes. *d. One equity account increases and another equity account decreases by an equal amount. General Feedback: Learning objective 14.6: discuss the nature of, and account for, issues of shares subsequent to initial issues. 14. Cloud Company issued 20 000 share options to subscribe for ordinary shares. The exercise price on the options was $3 per share. If all options were exercised on the due date, the journal entry that would be recorded is:

a. b. c. *d. General Feedback: Learning objective 14.6: discuss the nature of, and account for, issues of shares subsequent to initial issues. 15. A company issued share option is an instrument that gives the holder the right, but not the obligation, to:

14.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. receive a certain dividend declared by the company by a specified date. b. receive a bonus issue of shares in a proportion as notified by the company. *c. buy a certain number of shares in the company by a specified date at a stated price. d. sell a certain number of shares in the company by a specified date at a stated price. General Feedback: Learning objective 14.6: discuss the nature of, and account for, issues of shares subsequent to initial issues. 16. Regulations for share buy-backs are primarily designed to protect the interests of a company's: a. shareholders. *b. creditors. c. directors. d. option holders. General Feedback: Learning objective 14.7: discuss the rationale behind, and accounting treatment of, share buybacks. 17. Which of the following is not a reason that companies may undertake a share buy-back? a. To manage the capital structure. *b. As a defence against a hostile takeover. c. To efficiently manage surplus funds. d. To increase the value per share of the remaining shares. General Feedback: Learning objective 14.7: discuss the rationale behind, and accounting treatment of, share buybacks. 18. balance in the retained earnings account is affected by: I. Issued share capital. II. Dividends paid or provided for. III. Transfers to or from other reserve accounts. IV. Changes in accounting policies and errors. a. II and III only. b. I, II, III and IV. c. I, II and III only. *d. II, III and IV only. General Feedback:

14.7

Chapter 14: Share capital and reserves Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 14.8: explain the nature of retained earnings and account for movements in retained earnings, including dividends. 19. Dividends declared after the balance date but before the financial statements are authorised for issue: a. meet the recognition criteria for a liability. b. satisfy the recognition criteria for an expense. *c. do not meet the criteria of a present obligation. d. are recognised in the statement of financial position as they meet the definition of equity. General Feedback: Learning objective 14.8: explain the nature of retained earnings and account for movements in retained earnings, including dividends. 20. Which of the following is responsible for whether final dividends are declared by a company? a. Creditors of the company. b. Auditors of the company. *c. Directors of the company. d. International Accounting Standards Board. General Feedback: Learning objective 14.8: explain the nature of retained earnings and account for movements in retained earnings, including dividends. 21. Retained earnings are a component of: *a. equity. b. contributed equity. c. other equity. d. comprehensive income. General Feedback: Learning objective 14.9: Explain the nature of reserves and account for movements in reserves. 22. AASB 101/IAS 1 requires that a reconciliation between the carrying amount of each class of contributed equity capital and each reserve at the beginning and end of each period be disclosed in: a. the statement of changes in equity only. b. the notes to the financial statements only. c. Statement of profit or loss and other comprehensive income. *d. either the statement of changes in equity or the notes to the financial statements.

14.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 14.10: Prepare a statement of changes in equity as well as note disclosures in relation to equity. 23. AASB 101 requires that information in relation to dividends paid or declared during the year be disclosed in: *a. either the statement of changes in equity or the notes to the financial statements. b. the statement of changes in equity only. c. the notes to the financial statements only. d. the statement of comprehensive income. General Feedback: Learning objective 14.10: Prepare a statement of changes in equity as well as note disclosures in relation to equity.

14.9

Testbank to accompany: Financial reporting 4e by Loftus et al. Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 15: Share-based payment Multiple choice questions 1. Which of the following is within the scope of AASB 2/IFRS 2 Share-based Payment? *a. Cancellation, replacement or modification of share-based payments arising because of a business combination or restructuring. b. Transactions in which the entity receives or acquires goods or services as part of the net assets acquired in a business combination to which AASB 3/IFRS 3 Business Combinations applies. c. Transaction in which the entity receives or acquired goods or services under a contract which is within the scope of AASB/IFRS 9 Financial Instruments applies. d. Transactions with employees in the employee's capacity as a holder of equity instruments of the entity. General Feedback: Learning objective 15.1: Explain the objective of AASB 2/IFRS 2. 2. Which of the following is not within the scope of AASB 2/IFRS 2 Share-based Payment? a. Equity instruments granted to employees of the acquiree in a business combination in their capacity as an employee. b. Cancellation, replacement or other modification of share-based payment arrangements because of a business combination. c. Cancellation, replacement or other modification of share-based payment arrangements because of other equity restructuring. *d. Transactions in which the entity receives or acquires goods or services as part of the net assets acquired in a business combination to which AASB/IFRS 3 Business Combinations applies. General Feedback: Learning objective 15.1: Explain the objective of AASB 2/IFRS 2. 3. As per AASB 2/IFRS 2 Share-based Payment, a/an share-based payment transaction is one 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. a. equity-settled b. liability-settled *c. cash-settled d. "other" General Feedback:

15.2

Chapter 15: Share based payment

Learning objective 15.2: distinguish between cash-settled and equity-settled share-based payment transactions. 4. A share-based payment transaction in which the entity receives goods or services as consideration for equity instruments of the entity is classified, in AASB 2/IFRS 2 Share-based Payment, as: *a. an equity-settled share-based payment transaction. b. a liability-settled share-based payment transaction. c. a cash-settled share-based payment transaction. d. an 'other' share-based payment transaction. General Feedback: Learning objective 15.2: distinguish between cash-settled and equity-settled share-based payment transactions. 5. Which of the following statements in relation to how equity-settled and cash-settled share-based payment transactions are recognised is not correct? a. AASB 2/IFRS 2 requires goods or services received in a share-based payment transaction to be recognised when they are received. *b. When the goods or services received in a share-based payment do not qualify for recognition as an asset, they must be recognised as a liability. c. An increase in equity must be recognised if goods or services are received in an equity-settled share-based payment transaction. d. An increase in a liability must be recognised if the goods or services are acquired in a cashsettled share-based payment transaction. General Feedback: Learning objective 15.3: demonstrate how equity-settled and cash-settled share-based payment transactions are recognised. 6. Jax Limited grants 1 000 share options to each of its 80 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 $10.00 at grant date and $12.50 at vesting date. The amount to be recognised as an expense by Jax Limited in year 2 is: a. $400 000. b. $800 000. *c. $200 000. d. $1 000 000. General Feedback:

15.3

Testbank to accompany: Financial reporting 4e by Loftus et al. Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 15.4: explain how equity-settled share-based payment transactions are measured. Workings: 80 employees x 1 000 options x ($12.5 - $10) = $200 000. 7. Tony Limited grants 500 share options to each of its 20 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 $6.00 at grant date and $8.00 at vesting date. The amount to be recognised as an expense by Tony Limited in year 2 is: a. $40 000. *b. $20 000. c. $60 000. d. $80 000. General Feedback: Learning objective 15.4: explain how equity-settled share-based payment transactions are measured. Workings: 20 employees x 500 options x ($8 - $6) = $20 000. 8. In situations where an option-pricing model is required to be used to determine the fair value of equity instruments granted, the accounting standard, AASB 2/IFRS 2 Share-based Payment: a. requires the use of a binominal option-pricing model. b. requires the use of the Black-Scholes-Merton formula. *c. 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. d. requires expected dividends to be taken into account when measuring the shares or options granted. General Feedback: Learning objective 15.4: explain how equity-settled share-based payment transactions are measured. 9. On 1 July 2024 Pippa Limited granted 300 share options to each of its 50 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 $8.00. Pippa estimates that 6% 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 2025 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 2026 a further 4 employees left. The amount to be recognised as an expense by Pippa for the year ended 30 June 2025 is: *a. $54 000. b. $108 000. c. $120 000.

15.4

Chapter 15: Share based payment

d. $60 000. General Feedback: Learning objective 15.5: Explain the concept of vesting through differentiating between vesting and non-vesting conditions. Workings: (300 x 50 x 90%) x $8 x 1/2. 10. On 1 July 2025, Lamb Limited granted 250 options to each of its 100 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 $15 at vesting date. In addition, the shares will vest as follows: On 30 June 2026 if the company's earnings have increased by more than 15%. On 30 June 2027 if the company's earnings have increased by more than 12% averaged across the 2 year period. At 30 June 2026 Lamb's earnings have increased by 12% and 5 employees have left. The company expects that earnings will continue to increase at a similar rate during the year to 30 June 2027 and that the shares will vest at that time. It also expects that a further 7 employees will leave during the year. The remuneration expense for the year ended 30 June 2026 for Lamb is: a. $178 125. *b. $165 000. c. $330 000. d. $187 500. General Feedback: Learning objective 15.5: Explain the concept of vesting through differentiating between vesting and non-vesting conditions. Workings: (250 x [100-5-7]) x $15 x 1/2 11. On 1 July 2024, Devin Ltd granted 800 share options with an exercise price of $25 to the CFO, conditional on the CFO remaining in employment with the company until 30 June 2027. The exercise price will drop to $20 if Devin's earnings increase by an average of 10% per year over the three year period. On 1 July 2024 the estimated fair value of the share options with an exercise price of $25 is $15 per option, and if the exercise price is $20, the estimated fair value of the options is $18 per option. During the year ended 30 June 2025 Devin'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 2026 Devin's earnings increased by 8% and Devin management expected that the earnings target would be achieved. During the year ended 30 June 2027 Devin's earnings increased by 12%. When calculating the remuneration expense to be recognised for the year ended 30 June 2026 which of the following dollar values should be included in the calculation? a. $18. b. $20. c. $25.

15.5

Testbank to accompany: Financial reporting 4e by Loftus et al. Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. $15. General Feedback: Learning objective 15.5: Explain the concept of vesting through differentiating between vesting and non-vesting conditions. Workings: The average earnings for the 2 years is 9%, not the required 10%. Therefore, the exercise price of the share options stays at $25 and the calculation uses the fair value per option as $15. 12. On 1 July 2024, Harvey Pty Ltd granted 100 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 $5.00 at vesting date. In addition, the shares will vest as follows: On 30 June 2025 if the company's earnings have increased by more than 12%. On 30 June 2026 if the company's earnings have increased by more than 10% averaged across the 2 year period. On 30 June 2027 if the company's earnings have increased by more than 8% averaged across the 3 year period. At 30 June 2025 Harvey Pty Ltd's earnings have increased by 11% and 2 employees have left. The company expects that earnings will continue to increase at a similar rate during the year to 30 June 2026 and that the shares will vest at that time. It also expects that a further 3 employees will leave during the year. The remuneration expense for the year ended 30 June 2025 for Harvey Pty Ltd is: a. $12 500. *b. $11 250. b. $25 000. d. $22 500. General Feedback: Learning objective 15.5: Explain the concept of vesting through differentiating between vesting and non-vesting conditions. Workings: (50-2-3) employees x 100 options x $5.00 x ½. 13. On 1 July 2024 Harbour Pty Ltd granted 800 share options with an exercise price of $35 to the Finance Director, conditional on the Finance Director remaining in employment with the company until 30 June 2027. The fair value of Harbour's shares at that time were assessed to be $40. The exercise price will drop to $30 if Harbour's earnings increase by an average of 8% per year over the three year period. On 1 July 2024 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 2025 Harbour'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 2026 Harbour's earnings increased by 9% and Harbour management continued to expect that the earnings target would be achieved. During the year ended 30 June 2027 Harbour's earnings increased by only 2%. At 30 June 2027 the share price is $23. The remuneration expense to be recognised for the year ended 30 June 2025 is:

15.6

Chapter 15: Share based payment

a. $2 667. *b. $3 200. c. $8 000. d. $9 600. General Feedback: Learning objective 15.5: Explain the concept of vesting through differentiating between vesting and non-vesting conditions. Workings: 800 options x $12 x 1/3. 14. On 1 July 2024 Vest Pty Ltd granted 800 share options with an exercise price of $35 to the Finance Director, conditional on the Finance Director remaining in employment with the company until 30 June 2024. The fair value of Vest's shares at that time were assessed to be $40. The exercise price will drop to $30 if Vest's earnings increase by an average of 8% per year over the three year period. On 1 July 2024 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 2025 Vest'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 2026 Vest's earnings increased by 9% and Vest management continued to expect that the earnings target would be achieved. During the year ended 30 June 2027 Vest's earnings increased by only 2%. At 30 June 2027 the share price is $23. Assuming that the Finance Director decides not to exercise his options at 30 June 2027, the following entry would be recorded: a. DR Wages expense; CR Options issued (equity). b. DR Options issued (equity); CR Lapsed options reserve. c. DR Options issued (equity); CR Retained earnings. *d. DR Options issued (equity); CR Wages expense. General Feedback: Learning objective 15.6: explain the concept of a share option reload feature. 15. How are reload features accounted for? a. As a market condition. b. Included in the fair value of the initial options granted at measurement date. *c. Separately from the initial options granted. d. As a modification to the initial terms and conditions of the initial options granted. General Feedback: Learning objective 15.6: explain the concept of a share option reload feature.

15.7

Testbank to accompany: Financial reporting 4e by Loftus et al. Not for distribution in full. Instructors may assign selected questions in their LMS.

16. On 1 July 2022 Sheldon Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2024 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $8, which is also Sheldon's share price at the grant date. Sheldon is unable to reliably estimate the fair value of the share options at the grant date. Sheldon's share price and the number of options exercised are set out below. Share options may only be exercised at year end.

The cumulative remuneration expense to be recognised by Sheldon as at 30 June 2024 is: a. $24 600. *b. $72 800. c. $54 600. d. $145 600. General Feedback: Learning objective 15.6: explain the concept of a share option reload feature. Workings: 18 200 options x ($12-$8) 17. On 1 July 2022 Sheldon Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2024 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $8, which is also Sheldon's share price at the grant date. Sheldon is unable to reliably estimate the fair value of the share options at the grant date. Sheldon's share price and the number of options exercised are set out below. Share options may only be exercised at year end.

The formula to calculate the remuneration expense for the year ended 30 June 2025 is: a. 8 200 x ($13-$12). b. 8 200 x $13. c. (8 200 + 10 000) x ($13-$8). *d. (8 200 + 10 000) x ($13-$12). General Feedback: © John Wiley and Sons Australia, Ltd 2022

15.8

Chapter 15: Share based payment

Learning objective 15.6: explain the concept of a share option reload feature. 18. In relation to modifications to the terms and conditions on which equity instruments were granted as part of an employee share scheme, which of the following statements 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. An increase in the number of equity instruments granted is not an example of a modification. *d. A shortening of the vesting period will increase the fair value of the share options. General Feedback: Learning objective 15.7: explain how modifications to granted equity instruments are treated. 19. On 1 July 2024 Marley Ltd grants 100 options to each of its 40 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Marley also estimates that 10 employees will leave over the three year vesting period. By 30 June 2025 four employees have left and the entity estimates that a further eight employees will leave over the next two years. On 30 June 2025 Marley decided to reprice its share options, due to a fall in its share price over the last 12 months. At the date of repricing, Marley 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 2026 a further four employees left and Marley estimates that another four employees will leave during the next year. During the year ended 30 June 2027 only three employees left. The share options vested on 30 June 2024. The remuneration expense for the year ended 30 June 2025 is: a. $12 000. *b. $11 200. c. $13 500. d. $14 000. General Feedback: Learning objective 15.7: explain how modifications to granted equity instruments are treated. Workings: (40-12*) employees x 100 options x $12 x 1/3 = $11 200 *4 employees left and another 8 are estimated to leave. 20. On 1 July 2024 Lucas Ltd grants 100 options to each of its 40 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Lucas also estimates that 10 employees will leave over the three year vesting period. By 30 June 2025 four employees have left and the entity estimates that a further eight employees will © John Wiley and Sons Australia, Ltd 2022

15.9

Testbank to accompany: Financial reporting 4e by Loftus et al. Not for distribution in full. Instructors may assign selected questions in their LMS.

leave over the next two years. On 30 June 2025 Luca decided to reprice its share options, due to a fall in its share price over the last 12 months. At the date of repricing, Lucas 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 2026 a further four employees left and Lucas estimates that another six employees will leave during the next year. During the year ended 30 June 2027 only three employees left. The share options vested on 30 June 2027. The cumulative remuneration expense for the year ended 30 June 2026 is: a. $21 200. *b. $32 400. c. $45 600. d. $60 000. General Feedback: Learning objective 15.7: explain how modifications to granted equity instruments are treated. Workings: ([50-4-4-6*] employees x 100 options) x {($12 x 2/3)+($2** x ½)} = 36 employees x 100 options x $9 *4 employees left in Yr 1, another 4 left in Yr 2, and another 6 are estimated to leave in Yr 3. **fair value of repriced option $5 less original fair value of options $3 = incremental value of $2 per option. 21. In relation to equity instruments granted by an entity where the entity makes modifications to the terms and conditions attaching to the grant: a. if the modification occurs during the vesting period, the incremental fair value is recognised immediately. b. terms or conditions may not be modified in a manner that is not beneficial to the employee. *c. where the exercise price of options is modified, the fair value of the options changes. d. 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. General Feedback: Learning objective 15.7: explain how modifications to granted equity instruments are treated. 22. On 1 July 2024 Molly 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. Molly estimates that 15 employees will leave over the three year vesting period. By 30 June 2025 four employees have left and the entity estimates that a further ten employees will leave over the next two years. On 30 June 2025 Molly 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 2027. At the date of repricing, Molly

15.10

Chapter 15: Share based payment

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 2026 a further 6 employees leave and Molly estimates that another 3 employees will leave during the year ended 30 June 2027. During the year ended 30 June 2027 four employees left. The entry at 30 June 2026 to account for the share based payment transaction is: a. DR Wages expense; CR Cash. *b. DR Wages expense; CR Options issued (equity). c. DR Wages expense; CR Share capital. d. DR Wages expense; CR Liability to employee. General Feedback: Learning objective 15.7: explain how modifications to granted equity instruments are treated. 23. In a share based payment transaction where the entity has settlement choice, which of the following statements is true? a. the entity must settle in equity unless there is no commercial substance to the transaction. b. if an entity elects to settle in cash the settlement is accounted for as an expense. c. where a present obligation does not exist the entity has a choice of classification as an equity or cash settled share based payment transaction. *d. the entity has a present obligation to settle in cash where it has a past practice or stated policy of settling in cash. General Feedback: Learning objective 15.8: demonstrate how cash-settled share-based payment transactions are measured. 24. Which of the following statements in relation to cash-settled share-based payment transactions is not correct? a. Where share appreciation rights vest immediately, the services and the associated liability must also be recognised immediately b. Where share appreciation rights do not vest until the employee has completed a specified period of service, the services received and the associated liability to pay for those services are recognised as the service is rendered. c. If the entity selects the settlement alternative with the higher fair value an additional expense for the excess value given is required to be recognised. *d. Some share-based payments provide either the entity or the counterparty with the choice of having the transaction settled in cash (or other assets) or the issue of a financial liability. General Feedback: Learning objective 15.8: demonstrate how cash-settled share-based payment transactions are measured.

15.11

Testbank to accompany: Financial reporting 4e by Loftus et al. Not for distribution in full. Instructors may assign selected questions in their LMS.

25. Which of the following disclosures is not required under AASB 2/IFRS 2 Share-based Payment? a. For arrangements that were modified during the year: the incremental fair value granted as a result. b. The weighted average price of share options at the date of exercise for options exercised during the period. *c. 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. d. A description of the share-based payment plan, including the general terms and conditions, vesting requirements, maximum term of options granted and method of settlement must be disclosed. General Feedback: Learning objective 15.9: describe and apply the disclosure requirements of AASB 2/IFRS 2.

15.12

Chapter 16: Revenue Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 16: Revenue Multiple choice questions 1. Which of the following are included in the scope of AASB 15/IFRS 15 Revenue from Contracts with Customers? I. Insurance contracts. II. Subscriptions. III. Accounting for investments in associates. IV. Accounting for share of joint venture revenue. *a. II only. b. II and IV only. c. I and IV only. d. II and III only. General Feedback: Learning objective 16.1: describe the scope of AASB 15/IFRS 15. 2. Which of the following are excluded from the scope of AASB 15/IFRS 15? I. Financial instruments within the scope of AASB 9/IFRS 9. II. Insurance contracts within the scope of AASB 4/IFRS 4. III. Arrangements between oil companies that agree to exchange oil to meet demands of customers in different locations. IV. Lease agreements within the scope of AASB 16/IFRS 16. a. I, II only. b. II, III and IV only. c. I, III and IV only. *d. I, II, III and IV. General Feedback: Learning objective 16.1: describe the scope of AASB 15/IFRS 15. 3. The Conceptual Framework refers to two elements of performance. They are: a. liabilities and equity. b. revenue and expenses. *c. expenses and income. d. assets and liabilities. General Feedback: Learning objective 16.2: Explain the definition of 'income' under AASB 15/IFRS 15 and distinguish it from the definition of 'revenue'.

16.2

Testbank to accompany Financial reporting 4e by Loftus et al.

4. 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 retailer selling goods to a customer for $88 and remitting $8 GST to the government. b. A travel agent selling a cruise ticket to a customer, charging the customer $2 000 and remitting $1 800 to the cruise liner company. *c. A distributor receiving stock from its supplier on a sale-or-return basis. The sales price per unit is $100 and the cost per unit is $60. d. A licensed hotel selling keno tickets to customers for $5.00 and remitting $4.50 per ticket to the state gaming authority. General Feedback: Learning objective 16.2: Explain the definition of 'income' under AASB 15/IFRS 15 and distinguish it from the definition of 'revenue'. 5. The two categories of income, as specified in the Conceptual Framework, are: a. income and revenue. b. income and gains. *c. revenue and gains. d. revenue and profits. General Feedback: Learning objective 16.2: Explain the definition of 'income' under AASB 15/IFRS 15 and distinguish it from the definition of 'revenue'. 6. Which of the following is not a step in the recognition of revenue? a. Recognise revenue when the entity satisfies a performance obligation. *b. Allocate the buying price to the goods or services. c. Identify the performance obligation. d. Determine the transaction price. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 7. Which of the following are part of the criteria that must be met when accounting for a contract with a customer? I. Commercial substance. II. Approval of contract by all parties.

16.3

Chapter 16: Revenue Not for distribution in full. Instructors may assign selected questions in their LMS.

III. Identification of the payment terms for the goods/services. IV. The collection of the consideration from the customer is remote. a. I, III and IV. b. II and III only. c. I, II and IV. *d. I, II and III. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 8. The first step in the recognition of revenue is: a. determine the transaction price. b. identify the performance obligation in the contract. c. allocate the transaction price to the performance obligation. *d. identify the contract or contracts with the customer. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 9. "The amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties" is the definition of: a. the contract. b. the consideration. c. the performance obligation. *d. the transaction price. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 10. 1910 Designs Pty Ltd sells furniture on 12 months' interest free terms to qualifying customers. On 30 June 2026, 1910 Designs Pty Ltd sells $30 000 of furniture to T. Bailey, payable by 30 June 2027. The appropriate interest rate for this transaction is determined to be 7% per annum. The present value of the $30 000 to be received in one year's time is $28 037. The journal entry to be recorded by 1910 Designs Pty Ltd at 30 June 2026 is: a. DR Bank $30 000; CR Receivable $30 000. b. DR Receivable $30 000; CR Sales revenue $30 000. c. DR Receivable $30 000; CR Sales revenue $28 037; CR Interest revenue $1 963.

16.4

Testbank to accompany Financial reporting 4e by Loftus et al.

*d. DR Receivable $20 000; CR Sales revenue $28 037; CR Deferred interest $1 963. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 11. Which of the following statements relating to the identification of the performance obligation is incorrect? *a. The good or service to be transferred to the customer is non-distinct. b. The entity promises to transfer a distinct, or a series of distinct, goods or services to the customer. c. The customer can benefit from the good or service on its own or in conjunction with other readily available resources. d. The entity's promise to transfer the good or service to the customer is separately identifiable in the contract. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 12. When allocating the transaction price for a contract with a customer, the 'expected cost plus a margin approach' requires the entity to: a. evaluate the market in which it purchases goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services. b. allocate the price for the goods or services on an 'in-combination' basis. c. evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services. *d. forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service. General Feedback: Learning objective 16.3: explain and apply the five steps in recognising revenue. 13. Which of the following is not a condition to be satisfied when recognising revenue from the sale of goods or services? *a. The seller retains control over the goods. b. Reliable measurement of the transaction costs. c. The probability of future economic benefits flowing to the seller. d. Transfer of the significant risks and rewards of ownership of the goods from the seller to the buyer. General Feedback:

16.5

Chapter 16: Revenue Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 16.4: explain and apply the recognition criteria for revenue, distinguishing between the sale of goods and the rendering of services. 14. Cross Ltd sells goods to Bow Ltd and issues an invoice on 8 August. On that date, Bow Ltd requests that Cross Ltd delay delivery of the goods until the 25 August when they expect to have finished preparing their site for the goods. The goods can then be delivered on 26 August. Bow Ltd pays for the goods on 12 August and accepts full responsibility for the goods from this payment date. Assuming all other revenue recognition criteria are met, on which date can Cross Ltd recognise revenue for the sale of these goods? a. 25 August. *b. 8 August. c. 12 August. d. 26 August. General Feedback: Learning objective 16.4: explain and apply the recognition criteria for revenue, distinguishing between the sale of goods and the rendering of services. 15. Willow Ltd sells and delivers goods to Daisy Ltd on 11 May. Both parties agree that Daisy Ltd will hold the goods on consignment to be sold to third parties. Daisy Ltd is not required to pay Willow Ltd for the goods until they are sold to a third party. Which of the following statements is incorrect? *a. Willow Ltd recognises revenue on 11 May for the sale of goods to Daisy Ltd. b. Willow Ltd does not recognise any revenue until Daisy Ltd has on-sold goods to a third party. c. Willow Ltd retains the risks and rewards of ownership of the goods after delivery to Daisy Ltd. d. At the time of delivery of the goods to Daisy Ltd there is no probability that future economic benefits will flow to Willow Ltd. General Feedback: Learning objective 16.4: explain and apply the recognition criteria for revenue, distinguishing between the sale of goods and the rendering of services. 16. Aladdin Ltd is offering the following conditions to customers who purchase goods with a minimum total of $10 000 in the one transaction: · Initial deposit of 25% of purchase price. · Immediate delivery of goods purchased. · Repayment of the balance (including the interest) over 36 equal monthly instalments. · Aladdin Ltd retains legal title to the goods until the final monthly payment has been made. Aladdin Ltd would recognise revenue as follows: a. recognise the whole amount of revenue at purchase date. b. recognise all revenue as it is received

16.6

Testbank to accompany Financial reporting 4e by Loftus et al.

c. recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods at purchase date. *d. recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods once the final payment has been received. General Feedback: Learning objective 16.4: explain and apply the recognition criteria for revenue, distinguishing between the sale of goods and the rendering of services. 17. 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 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. *c. 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. d. The receipt of revenue from a sale is contingent on the buyer reselling the goods. General Feedback: Learning objective 16.4: explain and apply the recognition criteria for revenue, distinguishing between the sale of goods and the rendering of services. 18. In a principal/agent relationship for contracts with customers, the pre-determined fee or commission for services is earned by the: a. owner. *b. agent. c. principal. d. customer. General Feedback: Learning objective 16.5: interpret and analyse the revenue recognition issues and disclosures arising in specific industries in practice. 19. The key issue with connection fees received for connecting a customer to a telecommunications network is: a. whether they were provided by the principal or an agent. *b. whether the revenue is recognised in full upfront or over an actual or implied service period. c. whether the provision of the handset is a separate transaction.

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Chapter 16: Revenue Not for distribution in full. Instructors may assign selected questions in their LMS.

d. whether the distribution channels used by the telecommunications companies are acting as agents or acting in their own rights as principals. General Feedback: Learning objective 16.5: interpret and analyse the revenue recognition issues and disclosures arising in specific industries in practice. 20. Wings Limited develops and sells off-the-shelf accounting software packages. The retail price of each package is $660 (GST inclusive). Included with each package sold are 'free' upgrades for a period of 12 months from the date of sale. These upgrades can be purchased separately for $77 (GST inclusive). At the date of sale, Wings should record revenue of: a. $583.00. b. $660.00. c. $737.00. *d. $530.00. General Feedback: Learning objective 16.5: interpret and analyse the revenue recognition issues and disclosures arising in specific industries in practice. 21. Disclosure requirements for the recognition of revenue require an entity to disclose both qualitative and quantitative information about: I. the contracts with customers. II. the significant judgements and changes in the judgements made. III. any assets recognised from the costs to fulfil a contract with a customer. IV. total income, allocated between revenue and other gains. a. I and II only. *b. I, II and III only. c. I, III and IV only d. I, II, III and IV. General Feedback: Learning objective 16.6: describe the disclosure requirements of AASB 15/IFRS 15. 22. Disclosure requirements within AASB 15/IFRS 15 requires an entity to disclose the following: a. Qualitative and quantitative information about its contracts with customers. b. The significant judgements made. c. The assets recognised from the costs to fulfil a contract with a customer. *d. All of the options are correct.

16.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 16.6: describe the disclosure requirements of AASB 15/IFRS 15.

16.9

Chapter 17: Presentation of financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 17: Presentation of financial statements Multiple choice questions 1. AASB 101/IAS 1 Presentation of Financial Statements applies to the following sets of financial statements: *a. general purpose financial statements. b. interim financial statements. c. converted financial statements. d. special purpose financial statements. General Feedback: Learning objective 17.1: describe the main components of financial statements. 2. A set of financial statements prepared in accordance with AASB 101/IAS 1 comprises: I. A statement of cash flows. II. A statement of financial position. III. A statement of changes in equity. IV. A statement of profit or loss and other comprehensive income. V. Notes. a. I, II, and IV only *b. I, II, III, IV and V. c. I, III and IV only d. I, II, III and IV only General Feedback: Learning objective 17.1: describe the main components of financial statements. 3. A complete set of financial statements includes: a. the statement of financial position b. the statement of profit or loss and other comprehensive income c. notes comprising a summary of significant accounting policies and other explanatory material. *d. All of these items. General Feedback: Learning objective 17.1: describe the main components of financial statements. 4. The application of International Financial Reporting Standards, with additional disclosure where necessary, is presumed to result in financial statements that:

17.2

Testbank to accompany Financial reporting 4e by Loftus et al.

a. are unbiased. *b. will result in a fair presentation. c. contain only material items. d. are free from error and misstatement. General Feedback: Learning objective 17.2: explain the general principles underlying the preparation and presentation of financial statements. 5. Items that are dissimilar in nature must be presented separately in financial statements unless: a. they are financial items and can be off-set. b. the directors approve aggregation of the items. c. the auditors approval aggregation of the items. *d. they are immaterial. General Feedback: Learning objective 17.2: explain the general principles underlying the preparation and presentation of financial statements. 6. Assets and liabilities, and income and expenses may be offset if: a. there is no tax effect. *b. required or permitted by a standard. c. they are financial assets and liabilities. d. they are in respect of borrowing and lending activities such as interest revenue and interest expense. General Feedback: Learning objective 17.2: explain the general principles underlying the preparation and presentation of financial statements. 7. Under AASB 101/IAS 1 Presentation of Financial Statements, financial statements must be prepared and presented at least: a. monthly. *b. annually. c. half-yearly. d. every four months. General Feedback:

17.3

Chapter 17: Presentation of financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 17.2: explain the general principles underlying the preparation and presentation of financial statements. 8. The primary source of information about an entity's financial position is to be found in its statement of: a. cash flows. b. changes in equity. c. profit or loss and other comprehensive income. *d. financial position. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 9. According to AASB 101/IAS 1 Presentation of Financial Statements, a required format for the presentation of a statement of financial position is: a. prescribed by the standard. b. not prescribed and no guidance is provided in the standard. c. not prescribed by the standard but details are found in the Corporations Act. *d. not prescribed but guidance is provided in the standard for a suitable format. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 10. Which of the following items must be presented as a separate line item in the statement of financial position? *a. Trade and other receivables. b. Share of profit of associates. c. Revenue. d. Cost of sales. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 11. An entity is required to classify its assets and liabilities as current or non-current unless it is considered more relevant and more reliable for decision-making purposes to present them according to their: a. age. *b. liquidity.

17.4

Testbank to accompany Financial reporting 4e by Loftus et al.

c. value. d. physical nature. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 12. Under AASB 101/IAS 1 Presentation of Financial Statements, which of the following items is disclosed separately on the face of a statement of financial position? a. Investment property. b. Cash and cash equivalents. c. Current tax liability. *d. All of these items. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 13. Industries where operating cycles may exceed twelve months typically include: a. retail. b. manufacturing. c. food preparation. *d. property development. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 14. Which of the following items are normally classified as 'current' in a statement of financial position? I. deferred tax liabilities. II. accounts payable. III. inventories. IV. goodwill. *a. II and III. b. III and IV. c. I, III and IV. d. I, II, III and IV. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 15. A liability will be classified as 'non-current' if it satisfies which of the following criterion?

17.5

Chapter 17: Presentation of financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

a. it is held primarily for the purposes of being traded. b. due to be settled within twelve months of the balance date. c. expected to be settled in the entity's normal operating cycle. *d. due to be settled more than twelve months after the statement of financial position date. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 16. At reporting date for Year 1, Beta Limited had a loan from its financial institution that is expected to settle within six months. The loan term was renegotiated after reporting date and before the authorisation date of the financial statements and the repayment date was extended by two years. For the purposes of financial statement presentation for Year 1, this loan is classified by Beta Limited as a/an: *a. current liability. b. contingent liability. c. non-current liability. d. off-statement of financial position liability. General Feedback: Learning objective 17.3: explain the requirements of the statement of financial position. 17. According to AASB 101/IAS 1, a required format for the presentation of the statement of profit or loss and other comprehensive income is: a. prescribed by the standard. *b. not prescribed but guidance is provided in the standard for a suitable format. c. not prescribed and no guidance is provided in the standard for a suitable format. d. prescribed by the standard and further details are found in the Corporations Act. General Feedback: Learning objective 17.4: explain the requirements of the statement of profit or loss and other comprehensive income. 18. AASB 101/IAS 1 requires which of the following items to be disclosed separately in the statement of profit or loss and other comprehensive income: I. Cost of sales. II. Revenue. III. Finance costs. IV. Share of the profit or loss from associates. V. Tax expense relating to extraordinary events. a. I, II, and V.

17.6

Testbank to accompany Financial reporting 4e by Loftus et al.

b. II, III and V. *c. II, III, and IV. d. III and V. General Feedback: Learning objective 17.4: explain the requirements of the statement of profit or loss and other comprehensive income. 19. Which of the following items does not have to be presented as a line item on the face of a statement of profit or loss and other comprehensive income? a. Post-tax profit or loss of discontinued operations. *b. Closing inventories. c. Profit or loss attributable to non-controlling interests. d. Revenue. General Feedback: Learning objective 17.4: explain the requirements of the statement of profit or loss and other comprehensive income. 20. In respect to the statement of profit or loss and other comprehensive income of an entity, AASB 101/IAS 1 prescribes: a. the presentation of line items of revenue, but not of income. *b. line items that are considered to be of sufficient importance to warrant presentation. c. the presentation of line items comprising total expenses, but not line items comprising total revenue. d. a fixed format for the presentation of items in the statement of profit or loss and other comprehensive income. General Feedback: Learning objective 17.4: explain the requirements of the statement of profit or loss and other comprehensive income. 21. Under AASB 101/IAS 1, profit or loss attributable to non-controlling interests is required to be presented in the: a. statement of cash flows. b. statement of changes in equity. c. statement of financial position. *d. statement of profit or loss and other comprehensive income. General Feedback:

17.7

Chapter 17: Presentation of financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 17.4: explain the requirements of the statement of profit or loss and other comprehensive income. 22. In relation to 'retained earnings', AASB 101/IAS 1 mandates the following disclosures: I. The beginning balance. II. The balance at reporting date. III. Any changes during the reporting period. IV. The related tax adjustments in respect to any changes during the period. *a. I, II and III only. b. II, III and IV only. c. I, III and IV only. d. III and IV only. General Feedback: Learning objective 17.5: explain the requirements of the statement of changes in equity. 23. Which of the following items are included in a statement of changes in equity? I. Dividends paid. II. New share issues. III. Opening and closing balances. IV. Profit or loss for the period. a. II & III only. b. I, II, and III only. c. I, II and IV only. *d. I, II, III and IV. General Feedback: Learning objective 17.5: explain the requirements of the statement of changes in equity. 24. Included in a statement of changes in equity are the following items: I. Gains or losses not recognised in the statement of profit or loss and other comprehensive income. II. New share issues. III. Dividends paid. IV. Opening and closing balances. V. Profit or loss for the period. a. I, II & III. b. I, IV and V. *c. II, III, IV and IV. d. I, II, IV and V.

17.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 17.5: explain the requirements of the statement of changes in equity. 25. The issuing of bonus shares in lieu of a cash dividend would be separately disclosed in an entity's: a. statement of cash flows. *b. statement of changes in equity. c. statement of financial position. d. statement of comprehensive income. General Feedback: Learning objective 17.5: explain the requirements of the statement of changes in equity. 26. Which of the following note disclosures are not required by AASB 101/IAS 1? a. Significant accounting policies used. b. Sources of estimation uncertainty in relation to impairment of assets. c. Dividends declared after end of reporting period but before the financial statements are authorised for issue. *d. Names and qualifications of all directors of the entity. General Feedback: Learning objective 17.6: discuss other disclosures required by AASB 101/IAS 1 in the notes to the financial statements. 27. Some features of iXBRL digital financial reports include: a. hyperlinks for easier navigation b. human readable; appear similar to PDF financial reports. c. tagged financial information using common identifiers *d. All of these items. General Feedback: Learning objective 17.7 discuss digital reporting of financial information. 28. Which of the following items is not correct regarding digital reporting: *a. Digital reporting is mandatory in Australia. b. ASIC accepts and encourages digital financial reports that use iXBRL c. SRB was established to simplify business reporting obligations. d. With iXBRL, financial information can be extracted easily and efficiently

17.9

Chapter 17: Presentation of financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 17.7 discuss digital reporting of financial information.

17.10

Chapter 18: Statement of cash flows Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 18: Statement of cash flows Multiple choice questions 1. The basis of measurement used in the statement of cash flows is: a. accrual. b. current value. c. net present value. *d. cash and cash equivalents. General Feedback: Learning objective 18.1: explain the purpose of a statement of cash flows. 2. An item or transaction will qualify for classification as a cash equivalent: *a. only if it has a maturity of less than three months. b. only if its term to maturity is no greater than twelve months. c. only if it has a fixed maturity date of greater than twelve months. d. only if its term to maturity is no greater than twenty-four months. General Feedback: Learning objective 18.2: define cash and cash equivalents. 3. Bank borrowings are normally classified in the statement of cash flows as: a. financing activities, except for bank overdrafts that are repayable on demand. *b. financing activities, except for bank overdrafts that are repayable on demand and which form an integral part of an entity's cash management. c. operating activities, except for bank overdrafts that are repayable on demand and which form an integral part of an entity's cash management. d. investing activities, except for bank overdrafts that are repayable on demand and which form an integral part of an entity's cash management. General Feedback: Learning objective 18.2: define cash and cash equivalents. 4. According to AASB 107/IAS 7 Statement of Cash Flows, which of the following items does not fall within the definition of cash and cash equivalents? *a. Accounts receivable. b. Bank notes and coins. c. Non-bank bills that are readily convertible to cash.

18.2

Testbank to accompany Financial reporting 4e by Loftus et al.

d. Deposits on the short-term money market with a term of less than 3 months. General Feedback: Learning objective 18.2: define cash and cash equivalents. 5. In accordance with AASB 107/IAS 7 Statement of Cash Flows, investing and financing transactions that do not require the use of cash or cash equivalents should be: *a. excluded from a statement of cash flows. b. presented in a statement of cash flows before operating, investing and financing activities. c. presented in a statement of cash flows after the operating, investing and financing activities. d. presented in a statement of cash flows after operating activities and before investing and financing activities. General Feedback: Learning objective 18.2: define cash and cash equivalents. 6. Which of following is classified as part of 'investing activities' in the statement of cash flows? a. gain on sale of investments. b. depreciation of non-current assets. c. proceeds from an issue of shares. *d. acquisition of non-current assets. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 7. Which of the following items is classified as a 'financing activity' in the statement of cash flows? a. cash received from accounts receivable. b. cash payment to purchase debentures of another entity. *c. cash payment on redemption of the company's debentures. d. payment of dividends through a dividend reinvestment scheme. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 8. Operating activities on a statement of cash flows are generally associated with: a. changes in equity of an entity.

18.3

Chapter 18: Statement of cash flows Not for distribution in full. Instructors may assign selected questions in their LMS.

b. acquisitions of non-current assets of an entity. c. movements in non-current liabilities of an entity. *d. revenues and expenses of an entity. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 9. Financing activities on an entity's statement of cash flows are usually associated with: *a. movements in non-current liabilities and equity. b. disposal of non-current assets. c. purchase on shares by the entity. d. sales of goods and services by the entity. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 10. Which of the following cash flow activities are regarded as investing cash flows? a. interest paid. b. income taxes paid. *c. acquisition of subsidiary net of cash acquired. d. proceeds from issue of debentures. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 11. Which of the following items is classified as part of 'operating activities' in the statement of cash flows? a. Bad debts expense. b. Depreciation of non-current assets. c. Proceeds from the sale of non-current assets. *d. Payments to suppliers for the purchase of goods. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities.

18.4

Testbank to accompany Financial reporting 4e by Loftus et al.

12. For cash flow reporting purposes, operating activities include: a. acquisition and disposal of investments. b. buying and selling of non-current assets. c. incurring and extinguishing equity and debt. *d. those not otherwise classified as financing and investing. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 13. Investing activities are those relating to: *a. the acquisition or disposal of non-current assets. b. changing the size or financial structure of an entity. c. altering the composition of the debt of an organisation. d. restructuring the working capital components of a business. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. 14. Gordon Limited had the following cash flows during the reporting period: Purchase of intangibles $95 000 Proceeds from sale of plant $37 500 Receipts from customers $825 000 Payments to suppliers $692 000 Interest received $ 32 000 Income taxes paid $48 000 The net cash flows from operating activities was: a. $154 500. *b. $117 000. c. $59 500. d. $165 000. General Feedback: Learning objective 18.3: classify cash inflows and outflows into operating, investing and financing activities. Workings: $825 000 - $692 000 + $32 000 - $48 000. 15. For operating cash flows, the presentation method that separates gross cash inflows from cash outflows is the:

18.5

Chapter 18: Statement of cash flows Not for distribution in full. Instructors may assign selected questions in their LMS.

a. equity method. b. offset method. *c. direct method. d. indirect method. General Feedback: Learning objective 18.4: contrast the direct and indirect methods of presenting net cash flows from operating activities. 16. Which of the following cash flows may be reported on a net basis? a. cash receipts and payments for items in which the turnover is quick, the amounts small, and the maturities are short. *b. cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. c. cash receipts and payments for items in which the turnover is slow, the amounts are large, and the maturities are short. d. cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are long-term. General Feedback: Learning objective 18.4: contrast the direct and indirect methods of presenting net cash flows from operating activities. 17. Which of the following cash flows may be reported on a net basis by a financial institution? a. I, II and IV. b. II, III and IV. *c. I, III and IV. d. I, II and III. General Feedback: Learning objective 18.4: contrast the direct and indirect methods of presenting net cash flows from operating activities. I. Cash payments and receipts for the acceptance and repayment of deposits with a fixed maturity date. II. Cash receipts and payments for the acceptance and repayment of deposits with no fixed maturity date. III. The placement of deposits with and withdrawal of deposits from other financial institutions. IV. Cash advances and loans made to customers and the repayment of those advances and loans. 18. Koala Co. Limited had a profit after tax of $80 000 for the financial year. Included in this profit was: Depreciation expense of $25 000. Gain on sale of investments of $5 000.

18.6

Testbank to accompany Financial reporting 4e by Loftus et al.

Also, accounts receivable increased by $24000 and inventories decreased by $7000. The cash flow from operating activities during the year was: a. $72 000. *b. $83 000. c. $93 000. d. $100 000. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: $80 000 + $25 000 - $5 000 - $24 000 + $7 000 = $83 000. 19. The following information was extracted from the records of Vincent Limited: Opening balance of machinery: $870 000 Closing balance of machinery: $940 000 Cost of new machinery: $255 000 Proceeds from sale of machinery: $52 000 (Cost $185 000; Carrying amount $45 000) The total cash flows from investing activities is determined as: a. $52000 cash inflow. *b. $203cash outflow. c. $255000 cash outflow. d. $307000 cash inflow. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: Inflow $52 000 - Outflow $255 000 = Net cash outflow $203 000. 20. A company reported the following information for a financial year:

What is the net cash inflow (outflow) from investing activities? a. $17 000 net cash inflow. b. $23 000 net cash inflow. c. $(23 000) net cash outflow. © John Wiley and Sons Australia, Ltd 2022

18.7

Chapter 18: Statement of cash flows Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. $(17 000) net cash outflow. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: Loan made to another company $(23 000) outflow + Cash received from loans receivable $6 000 = net cash outflow $(17 000). 21. A company reported the following information for a financial year:

What is the net cash inflow (outflow) from financing activities? a. $125 000 net cash inflow. *b. $110 000 net cash inflow. c. $131 000 net cash inflow. d. $(15 000) net cash outflow. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: Inflow from issue of shares $125 000 - outflow for dividends paid $(15 000) = net cash inflow $110 000. 22. A company reported the following information for a financial year:

What is the net cash inflow from operating activities? a. $172 000. *b. $231 000. c. $227 000.

18.8

Testbank to accompany Financial reporting 4e by Loftus et al.

d. $304 000. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: $274 000 - $72 000 + $25 000 - $7 000 + $11 000 = $231 000. 23. Which of the following items must be separately disclosed in the statement of cash flows? I. Interest paid. II. Dividends paid. III. Interest received. IV. Dividends received. V. Auditor's remuneration paid. a. II, III and IV only. b. I, II and V only. c. II, III, IV and V only. *d. I, II, III and IV only. General Feedback: Learning objective 18.5: prepare a statement of cash flows. 24. Which of the following items is required to be presented in a statement of cash flows? a. Depositing cash on hand in the bank account. b. Payment of dividends through a share investment scheme. *c. Proceeds from the issue of debentures. d. Acquisition of an investment in a subsidiary for consideration consisting of an exchange of non-current assets and liabilities. General Feedback: Learning objective 18.5: prepare a statement of cash flows. 25. During the financial year Orange Limited had sales of $302000. The opening balance of accounts receivable was $25 000, and the closing balance was $42 000. Bad debts amounting to $3 700 were written off during the period. The cash receipts from sales during the year amounted to: a. $285 000. b. $298 300. *c. $281 300. d. $302 000. General Feedback:

18.9

Chapter 18: Statement of cash flows Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 18.5: prepare a statement of cash flows. Workings: $302 000 - (42 000 - 25 000) - $3 700 = $281 300 26. Blue Limited classifies interest paid and interest received as operating activities. Blue Limited had the following cash flows during the reporting period: Consideration paid to acquire a subsidiary, net of cash acquired $150 000 Dividends paid $40 000 Repayment of borrowings $85 000 Interest paid on borrowings $24 000 Proceeds from sale of plant $100 000 The amount of the cash flows in relation to financing activities of Blue Limited for the reporting period is: a. Net cash inflow $125 000. *b. Net cash outflow $125 000. c. Net cash inflow $40 000. d. Net cash outflow $40 000. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: dividends paid $40 000 + repayment of borrowings $85 000 = net cash outflow $125 000 27. During the financial year Cheese Limited had sales of $865000. The opening balance of accounts receivable was $52 500, and the closing balance was $76000. Bad debts amounting to $5500 were written off during the period. The cash receipts from customers during the year amounted to: *a. $836 000. b. $841 500. c. $865 000. d. $894 000. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: $865 000 - ($76 000 - $52 500) - $5 500. 28. During the financial year, Willow Limited had a cost of sales amounting to $280000. Opening and ending balances of related accounts were:

A discount of $5 000 for prompt payment was received. The amount of cash paid for goods purchased during the year was:

18.10

Testbank to accompany Financial reporting 4e by Loftus et al.

a. $280 000. b. $296 000. *c. $276 000. d. $313 000. General Feedback: Learning objective 18.5: prepare a statement of cash flows. Workings: Cost of sales $280 000 + Increase in inventories $17 000 - Increase in accounts payable $16 000 - discount $5 000 = $276 000. 29. Blue Limited classifies interest paid and interest received as operating activities. Blue Limited had the following cash flows during the reporting period:

The amount of the cash flows in relation to investing activities of Blue Limited for the reporting period is: a. Net cash inflow $150 000. b. Net cash outflow $150 000. c. Net cash inflow $50 000. *d. Net cash outflow $50 000. General Feedback: Learning objective 18.6: Describe how a consolidated statement of cash flows is prepared when a business or subsidiary has been acquired or disposed of during the period. Workings: Proceeds from sale of plant $100 000 - Consideration paid to acquire a subsidiary, net of cash acquired $150 000 = net cash outflow $50 000. 30. In the equation for cash receipts from customers, the non-cash effect of the acquisition of a subsidiary is *a. Sales revenue + Accounts receivable acquired subsidiary - Increase in accounts receivable. b. Purchases + Accounts payable acquired subsidiary - Increase in accounts payable. c. Sales revenue - Accounts receivable acquired subsidiary - Increase in accounts receivable. d. Purchases + Accounts payable acquired subsidiary + Decrease in accounts payable. General Feedback: Learning objective 18.6: Describe how a consolidated statement of cash flows is prepared when a business or subsidiary has been acquired or disposed of during the period. 31. The components of cash and cash equivalents: © John Wiley and Sons Australia, Ltd 2022

18.11

Chapter 18: Statement of cash flows Not for distribution in full. Instructors may assign selected questions in their LMS.

a. must be disclosed and reconciled to amounts reported in the statement of changes in equity. b. may be disclosed at the option of the entity and reconciled to amounts reported in the statement of financial position. *c. must be disclosed and reconciled to amounts reported in the statement of financial position. d. must be disclosed and reconciled to amounts reported in the statement of profit or loss and other comprehensive income. General Feedback: Learning objective 18.7: prepare other disclosures required or encouraged by AASB 107/IAS 7. 32. AASB 107/IAS 7 does not require, but encourages, the disclosure of: I. The name(s) of the entity's bankers. II. The aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity. III. The amount of the cash flows arising from the operating, investing and financing activities of each reportable segment. IV. The amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities. a. I, II and IV. b. I, III and IV. *c. II, III and IV. d. I, II and III. General Feedback: Learning objective 18.7: prepare other disclosures required or encouraged by AASB 107/IAS 7.

18.12

Chapter 19: Accounting policies and other disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 18: Accounting policies and other disclosures Multiple choice questions 1. Which of the following is not required to be disclosed in an entity's accounting policy note? a. A description of the entity's key accounting policies. b. That the financial statements are general purpose financial statements. c. The measurement bases used in the preparation of the financial statements. *d. That the financial statements have been prepared on the going concern basis. General Feedback: Learning objective 19.1: describe how accounting policies and changes to accounting policies are disclosed in general purpose financial statements. 2. Which of the following disclosures are required by AASB 108/IAS 8 for a voluntary change in accounting policy? a. The nature of the change in accounting policy. b. The reasons that applying the new accounting policy provides reliable and more relevant information. c. The amount of the adjustment relating to periods prior to those presented to the extent practicable. *d. All of these disclosures are required. General Feedback: Learning objective 19.1: describe how accounting policies and changes to accounting policies are disclosed in general purpose financial statements. 3. Bailey Limited has discovered that the estimated useful life for a material depreciable asset needs to be updated due to a change in the way the asset is being used. The correct accounting treatment for this event is to: a. treat it as an error and adjust retrospectively. b. treat it as a change in accounting policy and adjust prospectively. *c. treat it as a change in an accounting estimate and adjust prospectively. d. treat it as a change in an accounting estimate and adjust retrospectively. General Feedback: Learning objective 19.2: describe how changes in accounting estimates are accounted for and disclosed in general purpose financial statements.

19.2

Testbank to accompany Financial reporting 4e by Loftus et al.

4. Which of the following does not require an entity to measure in a way that involves measurement uncertainty? *a. The original purchase price of an asset b. Provision for employee benefit such as long-service leave c. Allowance for expected credit losses d. Depreciation expense for an item of property plant and equipment General Feedback: Learning objective 19.2: describe how changes in accounting estimates are accounted for and disclosed in general purpose financial statements. 5. The correction of a material error that occurred in a previous period must be accounted for by: a. reflecting the correction in the current period's profit or loss. b. a prospective adjustment to the financial statements. c. ignoring it; as errors made in prior periods cannot be corrected. *d. a retrospective restatement in the first financial statements issued after the discovery of the error. General Feedback: Learning objective 19.3: explain how prior period errors arise, and how they are accounted for and disclosed in general purpose financial statements. 6. Errors can occur for which of the following reasons? I. Mistakes in applying accounting policies II. Misinterpretation of facts III. Mathematical mistakes IV. Fraud *a. I, II, III and IV b. I, II and III only c. II, III and IV only d. I and III only General Feedback: Learning objective 19.3: explain how prior period errors arise, and how they are accounted for and disclosed in general purpose financial statements. 7. Correcting the recognition, measurement and disclosure of amounts of financial statement elements as if a prior period error had never occurred is known as: a. prior period application.

19.3

Chapter 19: Accounting policies and other disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

b. historical restatement. *c. retrospective restatement. d. retrospective application. General Feedback: Learning objective 19.4: explain the requirements when it is impracticable to make retrospective adjustments for changes in accounting policies or correction of errors. 8. In determining whether an item is material, consideration must be given to: a. its value. b. its size only. c. its nature only. *d. both its size and nature. General Feedback: Learning objective 19.5: describe the concept of materiality and how material items are identified. 9. Which of the following statements relating to materiality is correct? a. Materiality only ever depends on the size of an item. *b. The disclosure provisions of accounting standards do not need to be applied if the resulting information is immaterial. c. All accounting policy information relating to material transactions is material. d. The disclosure provisions of accounting standards must always be applied even if the resulting information is immaterial. General Feedback: Learning objective 19.5: describe the concept of materiality and how material items are identified. 10. According to AASB 108, omissions or misstatements are material if they: a. have resulted from an act of fraud. b. are less than 10% of the relevant base amount. c. are greater than 10% of the relevant base amount. *d. could influence the economic decisions of users as based on the financial statements. General Feedback: Learning objective 19.5: describe the concept of materiality and how material items are identified.

19.4

Testbank to accompany Financial reporting 4e by Loftus et al.

11. The financial statements of an entity are authorised for issue on: *a. the day the directors' declaration is signed. c. the last day of the financial year. d. the day the auditor's report is signed. b. 30 June each year. General Feedback: Learning objective 19.6: explain the difference between types of events occurring after the end of the reporting period and how they are to be treated in the financial statements. 12. Events occurring after the end of the reporting period which provide evidence of conditions that existed at the end of the reporting period are known as: a. reporting events. *b. adjusting events. c. disclosing events. d. non-adjusting events. General Feedback: Learning objective 19.6: explain the difference between types of events occurring after the end of the reporting period and how they are to be treated in the financial statements. 13. A company's workforce went on strike for an indefinite period commencing on 28 July 2022. The strike was expected to cause severe financial conditions for the company. The financial statements for the year ended 30 June 2022 were expected to be finalised by 3 August 2022. In accordance with AASB 110 Events after the Reporting Period, the appropriate treatment regarding this event is to: a. adjust the financial statements, as it is an adjusting event. b. disclose as a note to the financial statements, as it is an adjusting event. *c. disclose as a note to the financial statements, as it is a non-adjusting event. d. do nothing as the event has occurred after the end of the reporting period. General Feedback: Learning objective 19.6: explain the difference between types of events occurring after the end of the reporting period and how they are to be treated in the financial statements. 14. Prior to the finalisation of the financial statements for the year ended 30 June 2022, a company experienced a number of material events, including: I.on 15 July 2022 the directors decided to close a division of the company at an estimated cost of $920 000.II.on 18 August 2022 a court decision found the company liable to pay damages of $350 000 to a major customer who had commenced legal action in April 2021.III.an independent valuation of property

19.5

Chapter 19: Accounting policies and other disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

conducted on 29 July 2022 revealed that the directors' valuation included in the 30 June 2022 financial statements was overstated by $400 000. General journal entries to adjust the financial statements will be required for which of the above events? a. I, II and III. b. II only, and make a note disclosure for I and III. c. III only, and make a note disclosure for I and II. *d. II and III only, and make a note disclosure for I. General Feedback: Learning objective 19.6: explain the difference between types of events occurring after the end of the reporting period and how they are to be treated in the financial statements.

19.6

Chapter 20: Earnings per share Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 20: Earnings per share Multiple choice questions

1. EPS refers to: a. equity per share. *b. earnings per share. c. earnings per shareholder. d. earnings per subsidiary. General Feedback: Learning objective 20.1: explain the objective of AASB 133/IAS 33. 2. Earnings per share is calculated by comparing an entity's (profit or revenue) with the : a. profit; number of shareholders. b. revenue; number of shareholders. *c. profit; number of ordinary shares it has on issue. d. revenue; number of ordinary shares it has on issue. General Feedback: Learning objective 20.1: explain the objective of AASB 133/IAS 33. 3. Earnings per share disclosed by reporting entities have limitations because of the: I. Different accounting methods that can be used in the determination of profit. II. Different amounts of profit depending on the size of the entity. III. Different numbers of shareholders depending on the size of the entity. IV. Ability of an entity to change the number of shares used in the denominator. *a. I and IV. b. II and III. c. II and IV. d. I and III. General Feedback: Learning objective 20.1: explain the objective of AASB 133/IAS 33. 4. Earnings per share is calculated by: a. dividing profit or loss attributable to preference shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period.

20.2

Testbank to accompany Financial reporting 4e by Loftus et al.

b. dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the end of the reporting period. c. dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the beginning of the reporting period. *d. dividing profit or loss attributable to ordinary shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period. General Feedback: Learning objective 20.1: explain the objective of AASB 133/IAS 33. 5. Under AASB 133, if an entity presents both consolidated and separate financial statements, the necessary disclosures need only be determined on the basis of: a. parent entity only. b. subsidiary entities only. *c. consolidated information. d. the entity has choice of either parent entity or consolidation. General Feedback: Learning objective 20.2: discuss the application and scope of AASB 133/IAS 33. 6. AASB 133 applies to the computation and presentation of earnings per share by: a. both reporting and non-reporting entities. b. only reporting entities whose shares are publicly traded. c. only those entities that are in the process of issuing ordinary shares that will be traded in public markets. *d. reporting entities whose shares are publicly traded, or of entities that are in the process of issuing ordinary shares that will be traded in public markets. General Feedback: Learning objective 20.2: discuss the application and scope of AASB 133/IAS 33. 7. The profit or loss that is used in the calculation of basic earnings per share is calculated as: a. profit before tax expense - tax expense - ordinary dividends. *b. profit before tax expense - tax expense - preference dividends. c. profit before tax expense - tax expense. d. profit before tax expense. General Feedback: Learning objective 20.3: explain the concept of basic earnings per share and how it is calculated.

20.3

Chapter 20: Earnings per share Not for distribution in full. Instructors may assign selected questions in their LMS.

8. The number of shares used in the calculation of earnings per share is: a. the average of the number of ordinary shares outstanding at the beginning and end of the reporting period. b. the number of preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period. c. the number of ordinary and preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period. *d. the number of ordinary shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period. General Feedback: Learning objective 20.3: explain the concept of basic earnings per share and how it is calculated. 9. On 1 July 2022, the beginning of the reporting period, Arthur Ltd has 40 000 ordinary shares on issue. On 1 April 2023, Arthur Ltd issued a further 10 000 ordinary shares for cash. The weighted average number of shares for use in the earnings per share calculation is: *a. 42 500 shares. b. 40 000 shares. c. 50 000 shares. d. 45 000 shares. General Feedback: Learning objective 20.3: explain the concept of basic earnings per share and how it is calculated. Feedback: 40 000 + (10 000 x 3/12) 10. On 1 January 2023, the beginning of the reporting period, Jupiter Ltd has 50 000 ordinary shares on issue. On 30 June 2023, Jupiter Ltd issued a further 20 000 ordinary shares for cash. On 1 November 2023, Jupiter Ltd repurchased 2 400 shares at fair value in a market transaction. The weighted average number of shares for use in the earnings per share calculation is: a. 60 000 shares. b. 70 000 shares. *c. 60 400 shares. d. 72 400 shares. General Feedback: Learning objective 20.3: explain the concept of basic earnings per share and how it is calculated. Feedback: 50 000 + (20 000 x 6/12) + (2 400 x 2/12)

20.4

Testbank to accompany Financial reporting 4e by Loftus et al.

11. Margaret Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2023 as $840 000. The number of ordinary shares on issue up to 31 October 2023 was 50 000. Margaret Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2023. Basic earnings per share at 30 June 2024 is: *a. $5.60 b. $7.20 c. $8.40 d. $11.20 General Feedback: Learning objective 20.3: explain the concept of basic earnings per share and how it is calculated. Feedback: $840 000 / [50 000 + (50 000 x 2)] = $840 000 / 150 000 12. Murray Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2023 as $630 000. The average market price of the entity's shares during the period is $3.00 per share. The weighted average number of ordinary shares on issue during the period is 100 000. The weighted average number of shares under share options arrangements during the year is 20 000 and the exercise price of shares under option is $1.50. Murray Ltd's basic earnings per share at 30 June 2023 is: a. $0.63 *b. $6.30 c. $5.25 d. $2.10 General Feedback: Learning objective 20.4: explain the concept of diluted earnings per share and how it is calculated. Feedback: $630 000 / 100 000 13. For the purposes of calculating diluted earnings per share, an entity shall adjust the profit attributable to ordinary shareholders by the after-tax effect of the following item(s) related to dilutive potential ordinary shares: a. dividends only. b. interest only. c. other income or expenses only. *d. dividends, interest, other income or expenses. General Feedback:

20.5

Chapter 20: Earnings per share Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 20.4: explain the concept of diluted earnings per share and how it is measured. 14. If all of the dilutive securities were converted into ordinary shares, the diluted earnings per share ratio: a. must include an adjustment to increase the number of ordinary shares that would be outstanding. b. may include an adjustment to increase the weighted average number of ordinary shares (WANOS) that would be outstanding. *c. must include an adjustment to increase the weighted average number of ordinary shares (WANOS) that would be outstanding. d. must include an adjustment to decrease the weighted average number of ordinary shares (WANOS) that would be outstanding. General Feedback: Learning objective 20.4: explain the concept of diluted earnings per share and how it is calculated. 15. WSL Ltd reports the following in its financial statements for the period ended 30 June 2023: Profit attributable to ordinary shareholders for the period $1,200,000 The weighted average number of ordinary shares (WANOS) 500,000 share Weighted average number of shares under option 100,000 shares Average market price of WSL Ltd' share $20 per share Exercise price for shares under option $15 per share Its basic and diluted earnings per shares are: a. Basic EPS $ 2.00: Diluted EPS $2.40 b. Basic EPS $2.00: Diluted EPS $2.00 c. Basic EPS $2.40: Diluted EPS $2.00 *d. Basic EPS $2.40: Diluted EPS $2.29 General Feedback: Learning objective 20.4: explain the concept of diluted earnings per share and how it is calculated. 16. Any errors or adjustments resulting from changes in accounting policies that are accounted for retrospectively requires: a. no retrospective adjustment to either basic or diluted earnings per share. *b. a retrospective adjustment to both basic and diluted earnings per share. c. a retrospective adjustment to basic earnings per share only. d. a retrospective adjustment to diluted earnings per share only.

20.6

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 20.5: describe and apply the disclosure requirements of AASB 133/IAS 33. 17. A company issues bonus shares for no consideration on 1 August 2023. For the reporting period ended 30 June 2024, the calculation of: a. only basic earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements. b. only the diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements. c. both basic earnings per share and diluted earnings per share may be adjusted retrospectively at the option of the entity for all periods that are presented in the financial statements. *d. both basic earnings per share and diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements. General Feedback: Learning objective 20.5: describe and apply the disclosure requirements of AASB 133/IAS 33. 18. The basic earnings per share and diluted earnings per share ratios must be presented in an entity's: a. statement of financial position even if the amounts are negative. b. statement of changes in equity even if the amounts are negative. *c. statement of profit or loss and other comprehensive income even if the amounts are negative. d. statement of profit or loss and other comprehensive income only if the amounts are positive. General Feedback: Learning objective 20.5: describe and apply the disclosure requirements of AASB 133/IAS 33. 19. Paragraphs 70-73 of AASB 133 prescribe various disclosures relating to earnings per share. The disclosures include: I. The amounts used as the numerators (earnings) in the ratios. II. The number of ordinary shares outstanding at the end of the financial year. III. The weighted average number of ordinary shares used as the denominator in the ratios. IV. A reconciliation of the earnings amounts to the profit or loss attributable to the parent entity. for the period including the individual effect of each class of instruments that affects earnings per share. a. I, II and III. *b. I, III and IV. c. II, III and IV. d. I, II and IV. General Feedback:

20.7

Chapter 20: Earnings per share Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 20.5: describe and apply the disclosure requirements of AASB 133/IAS 33. 20. If the entity has a discontinued operation, then it must also calculate and disclose the: a. basic earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income. b. diluted earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income. *c. basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income. d. basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income only if the discontinued operation contributed a profit in the current reporting period. General Feedback: Learning objective 20.5: describe and apply the disclosure requirements of AASB 133/IAS 33. 21. Which of the following may not be considered as a limitation of using earning per shares (EPS) as a performance measure? a. EPS takes no account of a company's debt position and financial leverage when calculating this ratio. b. Comparison of EPSs among different companies can be meaningless as each company has different policies. *c. An entity can enhance their EPS and look better-off by simply issuing more shares. d. EPS can be misleading as it does not consider the inflation General Feedback: Learning objective 20.6: discuss the advantages and disadvantages of having an accounting standard on earnings per share.

20.8

Chapter 21: Operating segments Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 21: Operating segments Multiple choice questions 1. AASB 8/IFRS 8 Operating Segments is primarily a: a. measurement standard. b. definition standard. *c. disclosure standard. d. conceptual standard. General Feedback: Learning objective 21.1: discuss the objectives of financial reporting by segments. 2. Segment disclosures are designed to: *a. disaggregate selected consolidated financial data. b. condense particular items of consolidated financial data into one financial statement. c. combine components of consolidated financial data to provide a higher level of summarisation. d. aggregate revenues and expenses so that only net profit is shown for each important segment. General Feedback: Learning objective 21.1: discuss the objectives of financial reporting by segments. 3. A key objective of providing financial reporting information by segment is: a. to allow detailed analysis to be undertaken by users such as segment profit margin analysis. b. to allow the user to better understand the entity's future performance. c. to highlight poorly performing areas of an entity's business to users. *d. to allow users to better assess the entity's risks and returns. General Feedback: Learning objective 21.1: discuss the objectives of financial reporting by segments. 4. AASB 8/IFRS 8 Operating Segments applies to: I. listed entities. II. public companies. III. entities in the process of listing. IV. any entity who voluntarily chooses to apply it. a. I, II and III only. b. II, III and IV only. c. I, II and IV only.

21.2

Testbank to accompany Financial reporting 4e by Loftus et al.

*d. I, III and IV only. General Feedback: Learning objective 21.2: identify the types of entities that are within the scope of AASB 8/IFRS 8. 5. If an entity presents both consolidated financial statements and parent entity financial statements in the same financial report, it must present: a. condensed segment data that includes revenue information only. b. segment data only on the basis of the parent entity financial statements. *c. segment data only on the basis of the consolidated financial statements. d. segment information on the basis of both the consolidated and the parent financial information. General Feedback: Learning objective 21.2: identify the types of entities that are within the scope of AASB 8/IFRS 8. 6. Complete the following sentence: AASB 8/IFRS 8 Operating Segments came into effect for financial reporting periods _ _ on or after 1 January 2009. Early adoption was _______ . a. ending, permitted *b. beginning, permitted c. beginning, not permitted d. ending, not permitted General Feedback: Learning objective 21.3: explain the controversy surrounding the issuance of AASB 8/IFRS 8. 7. Compared to AASB 114 Segment Reporting, AASB 8/IFRS 8 Operating Segments can be described as: *a. less prescriptive. b. less onerous in terms of disclosure. c. more closely aligned to other accounting standards. d. preferred in the European Union to its predecessor. General Feedback: Learning objective 21.3: explain the controversy surrounding the issuance of AASB 8/IFRS 8. 8. For financial reporting periods commencing prior to 1 January 2009, the accounting standard relating to segment reporting was:

21.3

Chapter 21: Operating segments Not for distribution in full. Instructors may assign selected questions in their LMS.

a. AASB 8 Operating Segments. *b. AASB 114 Segment Reporting. c. AASB 114 Operating Segments. d. AASB 8 Segment Reporting. General Feedback: Learning objective 21.3: explain the controversy surrounding the issuance of AASB 8/IFRS 8. 9. Which of the following statements is correct about the controversial issues surrounding AASB 8/IFRS 8? *a. The management approach adopted in AASB 8/IFRS 8 was argued to put preparers' needs ahead of users' needs. b. The European Parliament was not able to endorse AASB 8/IFRS 8 due to strong oppositions from European countries. c. Despite the objections from different parties, all IASB board members at the time unanimously agreed that AASB 8/IFRS 8 should replace AASB 114. d. The proponents of AASB 114 argued that AASB 8/IFRS 8 contains too many mandatory disclosure requirements compared to AASB 114. General Feedback: Learning objective 21.3: explain the controversy surrounding the issuance of AASB 8/IFRS 8. 10. Based on the information provided below, which business unit(s) should be identified as Viewing Ltd's operating segment(s)?

a. Chidi only. b. Jason only. *c. Eleanor only. d. Chidi and Jason. General Feedback: Learning objective 21.4: identify operating segments in accordance with AASB 8/IFRS 8.

21.4

Testbank to accompany Financial reporting 4e by Loftus et al.

11. The key decision points in identifying an entity's component as an operating segment include all the following criteria, except for: *a. the component's manager is part of the CODM. b. discrete financial information are available for the component. c. the component's operating results are regularly reviewed by the CODM. d. the component is able to generate revenue and incur expenses from its business activities. General Feedback: Learning objective 21.4: identify operating segments in accordance with AASB 8/IFRS 8. 12. Katoomba Ltd has a board of directors that consist of a Managing Director (MD. and non-executive directors. The MD has a regular monthly meeting with the Chief Operating Officer (COO) and the managers of Katoomba's three business units. During the meeting, each manager would present an update of their unit's financial performance. The financial information is then reviewed by the MD and the COO to assess the performance of each business unit and to make decisions related to resource allocation. In this case, who is the CODM of Katoomba? a. The MD only. b. The board of directors. *c. The MD and the COO. d. The MD, the COO, and the three managers. General Feedback: Learning objective 21.4: identify operating segments in accordance with AASB 8/IFRS 8. 13. Liza, Kelsey and Josh are the three operating segments of Young Company. Which of the following statements is correct based on the information provided below?

a. Liza, Kelsey and Josh are reportable segments of Young Company. b. Only Kelsey and Josh should be disclosed as reportable segments. c. Kelsey is not a reportable segment as it does not satisfy the profit/loss quantitative threshold. *d. Young Company needs to identify another reportable segment from 'other business units' component. General Feedback: Learning objective 21.5: apply the definition of reportable segments.

21.5

Chapter 21: Operating segments Not for distribution in full. Instructors may assign selected questions in their LMS.

14. Assuming the three business units below are operating segments and all revenue earned are from external customers, in which of the following scenarios does Bromwell Ltd need to identify another reportable segment to be disclosed?

a. I only. b. I and II. *c. I and III. d. II and III. General Feedback: Learning objective 21.5: apply the definition of reportable segments. 15. Which of the following is not related to the identification of reportable segments under AASB 8/IFRS 8? a. Two or more operating segments may be aggregated into a single operating segment. *b. The total revenue of reportable segments constitutes less than 75% of entity's income. c. The operating segment meets or exceeds any of the three quantitative thresholds (=10%). d. Management's belief that information about the segment would be useful to users. General Feedback: Learning objective: 21.5: apply the definition of reportable segments. 16. Which of the following information is not required to be disclosed by entities complying with AASB 8/IFRS 8? a. Revenues from external customers located in foreign countries. b. The nature and effect of the changes in measurement of segment profit or loss. c. A reconciliation of the total of the reportable segments' liabilities to the entity's liabilities. *d. The explanation of the measurement basis of all revenues and expenses reported in the financial statements. General Feedback: Learning objective 21.6: explain the disclosure requirements of AASB 8/IFRS 8.

21.6

Testbank to accompany Financial reporting 4e by Loftus et al.

17. AASB 8/IFRS 8 requires disclosure in relation to which of the following? a. The nature of any difference between the measurement of the reportable segments' revenue and the entity's revenue. *b. The nature of any difference between the measurement of the reportable segments' assets and liabilities and the entity's assets and liabilities. c. The basis of accounting for all segments. d. The nature and effect of all symmetrical allocations to reportable segments. General Feedback: Learning objective 21.6: explain the disclosure requirements of AASB 8/IFRS 8. 18. Under AASB 8/IFRS 8 all entities to which the standard applies are required to disclose: a. a measure of segment liabilities. b. factors used to identify all segments. *c. the basis of accounting for any transactions between reportable segments. d. a reconciliation of total segment expenses to total consolidated expenses. General Feedback: Learning objective 21.6: explain the disclosure requirements of AASB 8/IFRS 8. 19. Which of the following statements is incorrect? AASB 8/IFRS 8 requires external revenue by product to be disclosed on an entity wide basis by all entities to which AASB 8/IFRS 8 applies: a. unless the information is not available and the cost to develop it would be excessive. b. unless the information has already been provided as part of the reportable segment information. c. and must be calculated based on the financial information used to produce the entity's financial statements. *d. unless providing such information would be considered to damage the entity's competitive advantage. General Feedback: Learning objective 21.6: explain the disclosure requirements of AASB 8/IFRS 8. 20. Segments that do not satisfy the requirements of a reportable segment must: *a. be combined and disclosed as 'all other segments'. b. not be disclosed at all in the financial report. c. be reported in the notes to the financial statements. d. be combined with the smallest reportable segment.

21.7

Chapter 21: Operating segments Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 21.6: explain the disclosure requirements of AASB 8/IFRS 8. 21. Under AASB 8/IFRS 8, entities are required to provide reconciliations on the following, except for: a. the total of the reportable segment's revenue to the entity's revenue. *b. the total of the reportable segment's equity to the entity's equity. c. the total of the reportable segment's liabilities to the entity's liabilities. d. the total of the reportable segment's measures of profit and loss to the entity's profit or loss. General Feedback: Learning objective 21.6: explain the disclosure requirements of AASB 8/IFRS 8. 22. Disclosure of information about the operating segments is expected to useful to the users. Which one of the following is not one of the advantages of reporting by segments? a. Reporting by segments allows better understanding of expected returns from and risks of investing. *b. Detailed information about the reportable segments increases the net profit of a business. c. Information about the reportable segments can be useful to analyse the group's results d. Reporting by segments can be useful to prevent management from hiding detailed information in decision making General Feedback: Learning objective 21.7: analyse disclosures made by companies applying AASB 8/IFRS 8.

21.8

Chapter 22: Related party disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 22: Related party disclosures Multiple choice questions

1. AASB 124 shall be applied in identifying the following, except for: *a. insider trading with related parties. b. related party relationships and transactions. c. circumstances in which disclosures of transactions with related parties are required. d. outstanding balances, including commitments, between an entity and its related parties. General Feedback: Learning objective 22.1: explain the objective, application and scope of AASB 124/IAS 24 Related Party Disclosures. 2. Which of the following is the objective of disclosing the information about the related party transaction? a. To adjust an entity's financial statements to reflect the transactions with the related parties. *b. To provide transparency on how the financial statements may be affected by transactions with related parties. c. To enhance the financial performance presented in the statements. d. To regulate the transactions between the company and its subsidiaries. General Feedback: Learning objective 22.1: explain the objective, application and scope of AASB 124/IAS 24 Related Party Disclosures. 3. An entity is related to a reporting entity if any of the following conditions apply, except: a. both entities are joint venture of the same third party. b. the entity is the subsidiary of the reporting entity. *c. the reporting entity has significant economic dependence on the entity. d. the entity is a post-employment benefit plan for the reporting entity's employees. General Feedback: Learning objective 22.2: identify an entity's related parties. 4. The power to participate in the financial and operating policy decisions of an entity is known as: *a. control. b. joint control. c. share ownership.

22.2

Testbank to accompany Financial reporting 4e by Loftus et al.

d. significant influence. General Feedback: Learning objective 22.2: identify an entity's related parties. 5. The contractually agreed sharing of control over an economic entity is known as: *a. joint venture. b. joint control. c. significant influence. d. significant control. General Feedback: Learning objective 22.2: identify an entity's related parties. 6. Howard is one of the directors of Chester Limited. In the current financial year, Chester Limited paid $60 000 to Longfield Agency, where Howard's brother works, for the consultancy services it provided. In addition, Chester Limited also paid $4000 to Howard for a once-off consultancy he provided on a specific project. Which of the following statements describes the relationship between Howard, Chester Limited, and Longfield Agency? a. Howard is not a related party to Chester Limited. b. Longfield Agency is a related party to Chester Limited. c. The $4 000 consultancy fee is not a related party transaction. *d. The $60 000 consultancy fee is not a related party transaction. General Feedback: Learning objective 22.2: identify an entity's related parties. 7. Larry is the owner and founder of Manchester Limited. Larry's wife, Katie, has a controlling investment in Hudson Limited. Which of the following describes the relationship between Manchester Limited and Hudson Limited? a. No disclosure about transactions with Hudson Limited is required in the financial statements of Manchester Limited. b. Manchester Limited and Hudson Limited are not related parties. *c. Manchester Limited is a related party of Hudson Limited. d. Manchester Limited has control over Hudson Limited. General Feedback: Learning objective 22.2: identify an entity's related parties.

22.3

Chapter 22: Related party disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Which of the following is the related party of a reporting entity within the scope of AASB 124? a. A supplier of the reporting entity. *b. Another subsidiary of the reporting entity's parent. c. The domestic partner of a director of the reporting entity. d. The non-dependent children of the reporting entity's CEO. General Feedback: Learning objective 22.2: identify an entity's related parties. 9. Amy Limited and Sheldon Limited are the two subsidiaries of Big Bang Company. Leonard, one of the directors of Big Bang Company, is also a director of Sheldon Limited. Leonard's wife, Penny, has 10% shareholding in Sheldon Limited. Which of the following are related parties to Amy Limited? *a. Big Bang Company and Sheldon Limited. b. Big Bang Company and Leonard. c. Sheldon Limited and Leonard. d. Leonard and Penny. General Feedback: Learning objective 22.2: identify an entity's related parties. 10. Flower Limited is a listed company operating in the retail industry with three business units: Aster, Rose, and Jasmine. Which of the following is likely to be the key management personnel of Flower Limited? a. The company's auditor. b. The company's IT manager. *c. The general manager of Aster. d. The managing director's personal assistant. General Feedback: Learning objective 22.2: identify an entity's related parties. 11. An entity in which an investor has significant influence is known as a/an: *a. associate. b. subsidiary. c. related party. d. joint venture. General Feedback: Learning objective 22.2: identify an entity's related parties.

22.4

Testbank to accompany Financial reporting 4e by Loftus et al.

12. Chris holds an investment in Lee Limited that gives him a significant influence over the company. Chris's daughter, Chloe, also has a significant influence over another entity, Chang Limited. What is the relationship between Lee Limited and Chang Limited? a. Lee Limited has a significant influence over Chang Limited. *b. Lee Limited and Chang Limited are not related parties. c. Lee Limited is a related party of Chang Limited. d. Lee Limited has control over Chang Limited. General Feedback: Learning objective 22.2: identify an entity's related parties. 13. Amanda is one of the directors in Lions Limited, which is one of the subsidiaries of Harrisville Limited. She also has a joint control with Barry in Zephyr Limited. In this circumstance, the following are related parties to Lions Limited, except for: *a. Barry. b. Amanda. c. Harrisville Limited. d. Zephyr Limited. General Feedback: Learning objective 22.2: identify an entity's related parties. 14. Which of the following are most likely to be considered as key management personnel of an entity?

a. I, II and III. b. II, III and IV. *c. I, III and IV. d. I, II, III and IV. General Feedback: Learning objective 22.2: identify an entity's related parties. 16. Which of the following transactions are not related party transactions for an entity? I. An employee purchased the entity's products on normal trading terms. II. A subsidiary of the entity supplied raw materials to the entity.

22.5

Chapter 22: Related party disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

III. The entity lent money to one of its directors. IV. The entity made an agreement with a trade union about increase in employee's wages. a. I and II only. b. II and III only. *c. I and IV only. d. III and IV only. General Feedback: Learning objective 22.3: identify relationships that do not give rise to a related party relationship as envisaged under AASB 124/IAS 24. 17. Jack is a non-executive director of Shanghi Limited and Jiang Limited. Jack's wife, Sarah, is a nonexecutive director of Huang Limited. Which of the following statements is correct? a. Sarah is a related party to Jiang Limited. b. Jack is not a related party to Shanghi Limited. c. Shanghi Limited and Huang Limited are related parties. *d. Shanghi Limited and Jiang Limited are not related parties. General Feedback: Learning objective 22.3: identify relationships that do not give rise to a related party relationship as envisaged under AASB 124/IAS 24. 18. Thompson Limited is a subsidiary of Victor Limited. Which of the following is not a related party to Thompson Limited? a. A pension scheme that offers benefits to employees of Thompson Limited. b. The Managing Director of Victor Limited. *c. A distributor of Thompson Limited's products. d. An associate of Thompson Limited. General Feedback: Learning objective 22.3: identify relationships that do not give rise to a related party relationship as envisaged under AASB 124/IAS 24. 19. Two entities are not regarded as related parties simply because: a. one entity is a subsidiary of the other entity. b. one entity is a post- employment benefit plan for the other entity. c. a member of the key management personnel of one entity controls the other entity.

22.6

Testbank to accompany Financial reporting 4e by Loftus et al.

*d. a member of the key management personnel of one entity has significant influence over the other entity. General Feedback: Learning objective 22.3: identify relationships that do not give rise to a related party relationship as envisaged under AASB 124/IAS 24. 20. Barry Allen is one of the non-executive directors of Rose Company. In this current financial year, Rose Company had transactions with the following entities: I. Borrowed money from City Bank. II. Purchased raw materials from Arrow Company. III. Loaned money to one of its subsidiaries, Firestorm Company, with 10% per annum. IV. Sold products to Star Labs Company, of which Barry Allen is also a director. Which transactions are not related party transactions between Rose Company and another entity? a. I and II only. *b. I, II and IV. c. II and III only. d. II, III, and IV. General Feedback: Learning objective 22.3: identify relationships that do not give rise to a related party relationship as envisaged under AASB 124/IAS 24. 21. According to AASB 124, related party disclosures are required irrespective of whether there have been related party transactions when: *a. control exists. b. significant influence exists. c. economic dependence exists. d. all of the above. General Feedback: Learning objective 22.4: describe and apply the disclosures required by AASB 124/IAS 24. 22. The following remuneration categories must be disclosed for key management personnel, except for: a. share-based payments. *b. bonus payments. c. post-employment benefits. d. termination benefits. General Feedback:

22.7

Chapter 22: Related party disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 22.4: describe and apply the disclosures required by AASB 124/IAS 24. 23. In the case where financial statements of parent entity or the ultimate controlling entity are not made publicly available, the reporting entity must disclose: a. the name of the entity's largest shareholder. b. the level of share ownership of the next most senior parent entity. *c. the name of the next most senior parent entity whose financial statements are publicly available. d. the reason of why the parent entity does not make its financial statements publicly available. General Feedback: Learning objective 22.4: describe and apply the disclosures required by AASB 124/IAS 24. 24. Kelly is the general manager of Ned Limited and is considered to be the member of key management personnel. The following transactions occurred between Kelly and Ned Limited: Kelly purchased a product of Ned Limited on normal trading terms; Kelly received remuneration from Ned Limited amounting to $400 000; Ned Limited issued 80 000 options to Kelly, which can be converted into Ned Limited's shares if target profit margin of 25% is achieved in the next three years. Which of the above transactions must be disclosed as related party transactions? *a. Kelly's remuneration and the grant of options. b. The purchase of product and the grant of options. c. The purchase of product and Kelly's remuneration. d. All of the above transactions are related party transactions. General Feedback: Learning objective 22.4: describe and apply the disclosures required by AASB 124/IAS 24. 25. The minimum disclosures for related party transactions include the following, except: a. the amount of transactions. *b. the key management personnel of the related party. c. the amount of the outstanding balances and commitments. d. provision of doubtful debts related to outstanding balances. General Feedback: Learning objective 22.4: describe and apply the disclosures required by AASB 124/IAS 24. 26. Examples of related party transactions that must be disclosed include:

22.8

Testbank to accompany Financial reporting 4e by Loftus et al.

a. purchase or sales of goods. b. settlement of liabilities. c. disposal of assets. *d. all of the above. General Feedback: Learning objective 22.4: describe and apply the disclosures required by AASB 124/IAS 24. 27. If an entity chooses to apply the partial exemption from the related party disclosures, it still is required to provide details of information as outlined in paragraphs 26 of AASB 127/IAS 24. When determining the level of details, the entity needs to consider following factors, except for: a. the materiality of the actual transaction b. the closeness of the relationship with the related parties *c. the timing of the actual transaction carried on d. the involvement of regulatory authorities General Feedback: Learning objective: 22.5 explain why a government-related entity may have a partial exemption from related party disclosures 28. A government entity controls both James Limited and Claire Limited. Collum Limited and Dougall Limited are the subsidiaries of James Limited. Frank Randall is the managing director of James Limited. James Limited can apply the partial exemption disclosures in paragraph 25 of AASB 124 to transactions with the following parties, except for: *a. Frank Randall. b. Claire Limited. c. Collum Limited. d. the government entity. General Feedback: Learning objective 22.5: explain why a government-related entity has a partial exemption from related party disclosures. 29. Walton Co is a government agency that controls Science Limited. Science Limited has two subsidiaries: Physics Limited and Biology Limited. To which entities can Physics Limited apply the disclosure exemption in paragraph 25 of AASB 124? a. Science Limited only. b. Walton Co Limited only. c. Science Limited and Biology Limited only.

22.9

Chapter 22: Related party disclosures Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. Walton Co Limited, Science Limited and Biology Limited. General Feedback: Learning objective 22.5: explain why a government-related entity has a partial exemption from related party disclosures. 30. If an entity chooses to apply the disclosure exemption in paragraph 25 of AASB 124, it is still required to do the following, except: a. identify the government to which it is related. b. disclose the nature of the relationship with the government-related entities. *c. the nature and amount of every transaction with government-related entities. d. a qualitative or a quantitative indication of the extent of other transactions that are collectively significant. General Feedback: Learning objective 22.5: explain why a government-related entity has a partial exemption from related party disclosures.

22.10

Chapter 23: Sustainability recording Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 23: Sustainability reporting Multiple choice questions

1. Which one of the following is not true about the sustainability reporting? a. Sustainability reporting captures the environmental, social and governance reporting *b. Sustainability reporting follows the unified framework to increase clarification. c. Sustainability reporting can be used to legitimise the operations of an entity. d. Sustainability reporting reports a wide range of non-financial performance of an entity. General Feedback: Learning objective 23.1: explain the nature of sustainability reporting and why it might be adopted. 2. Which one of the following is not the benefits of ESG reporting? a. It can be useful to attract more customers. b. It can be useful to hire and retain talented employees. *c. It can be useful to increase the comparability between entities. d. It can be useful to enhance reputations and increase market share. General Feedback: Learning objective 23.1: explain the nature of sustainability reporting and why it might be adopted. 3. The UN report, Our Common Future, defined sustainable development as 'development that ': a. allows all societies to meet their needs to an equal degree. b. continues at the current pace, neither increasing nor decreasing into the foreseeable future. c. meets the needs of the future without compromising the ability of current generations to meet their own needs. *d. meets the needs of the present without compromising the ability of future generations to meet their own needs. General Feedback: Learning objective 23.1: explain the nature of sustainability reporting and why it might be adopted. 4. Which of the following statements about intragenerational equity is not true? a. It is an important aspect of eco-justice.

23.2

Testbank to accompany Financial reporting 4e by Loftus et al.

b. It is concerned with poverty and access to food, water and shelter. *c. It means that future generations should not have a lower quality of life. d. none of the above. They are all true. General Feedback: Learning objective 23.1: explain the nature of sustainability reporting and why it might be adopted. 5. The existence of a wide range of stakeholders has led to the concepts of 'double materiality' for sustainability reporting. Which of the following is not the reporting focus from the perspective of the 'double materiality'? a. Reporting on the matters that reflect the entity's significant impacts on the financial position and performance. *b. Reporting on the entity's social and environmental issues from the perspective of institutional investors c. Reporting on the matters that are related to the value creation of the entity d. Reporting on the entity's operations that have a significant impact on the environment and people. General Feedback: Learning objective 23.2: discuss stakeholder influence on sustainability reporting 6. Which of the following is not considered a stakeholder with potential interests in corporate sustainability? a. Media. b. Government. c. Financial Institutions. *d. None of the above. They are all potentially interested in corporate sustainability. General Feedback: Learning objective 23.2: discuss stakeholder influence on sustainable reporting. 7. Stakeholder power is generally considered to relate to which of the following factors? a. How vocal they are prepared to be. b. The amount of impact the organisation has on them. *c. The degree of control they have over resources required by the organisation. d. None of the above. General Feedback: Learning objective 23.2: discuss stakeholder influence on sustainable reporting.

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Chapter 23: Sustainability recording Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Ethical investment funds might be concerned about how individual companies address climate change because: a. they believe carbon emissions proxy for economic performance. b. they don't want to invest money on companies that waste money. *c. they believe companies that address environmental risks will perform better in the long run. d. none of the above. General Feedback: Learning objective 23.2: discuss stakeholder influence on sustainable reporting. 9. Which of the following terms is commonly used to mean sustainability reporting? a. Corporate social reporting. b. Triple bottom line reporting. c. Environmental, social and governance reporting. *d. All of the above. General Feedback: Learning objective 23.3: describe the main international frameworks that have been developed to report on sustainability issues. 10. Which of the following make up the three parts of the triple bottom line?

a. II, IV and VI *b. I, III and IV c. I, III and VI d. II, IV and V General Feedback: Learning objective 23.3: describe the main international frameworks that have been developed to report on sustainability issues. 11. The International Integrated Reporting Committee was formed by which two bodies? *a. GRI and A4S b. NGO and GRI

23.4

Testbank to accompany Financial reporting 4e by Loftus et al.

c. UNHCR and IASB d. IASB and FASB General Feedback: Learning objective 23.3: describe the main international frameworks that have been developed to report on sustainability issues. 12. According to the research undertaken to date, what is the relationship between environmental performance and disclosure of corporations? a. Poor performers have poor disclosure, but no relationship has been found for good performers. b. Poor performers have good disclosure, but no relationship has been found for good performers. c. Good performers have good disclosure, but no relationship has been found for poor performers. *d. Research has not drawn any clear conclusions General Feedback: Learning objective 23.3: describe the main international frameworks that have been developed to report on sustainability issues 13. The UN's Principles for Responsible Investment have mainly been adopted by which types of organisations? a. Builders. b. Governments. c. Mining companies. *d. Institutional investors. General Feedback: Learning objective 23.4: describe the main components of environmental, social and governance reporting 14. Which of the following is an environmental performance indicator under the GRI framework? a. Anti-corruption policies. *b. Impacts of transport. c. Rates of injury. d. None of the above. General Feedback: Learning objective 23.4: describe the main components of environmental, social and governance reporting.

23.5

Chapter 23: Sustainability recording Not for distribution in full. Instructors may assign selected questions in their LMS.

15. Which of the following is not an indicator under the GRI of labour practices and decent work performance? a. Workforce by gender. b. Education and training programs in place. *c. Assessment of product life cycle stages for health and safety risks. d. None of the above. They are all indicators of labour practices and decent work performance. General Feedback: Learning objective 23.4: describe the main components of environmental, social and governance reporting. 16. Which of the following statements is most correct regarding environmental, social and governance reports? a. They are not currently required in any country. b. They are required as part of the IASB's accounting standards. c. Norway is leading the way with regards to requiring reporting. *d. They are becoming mandatory in an increasing number of countries. General Feedback: Learning objective 23.4: describe the main components of environmental, social and governance reporting. 17. Which of the following statements is not correct in relation to the climate-related disclosures? *a. Accounting for the emission trading scheme follows the guidance outlined in IFRIC 3 Emission Rights. b. For the measurement of greenhouse gas, there is a concern for a double-counting issue. c. Greenhouse gas accounting is more focused on the entity's impact on the economy and environment d. One of the most pressing sustainability issues is climate change. General Feedback: Learning objective 23.5: evaluate the implications of climate change for accounting. 18. An emissions trading scheme: a. allows the trade of excess emissions permits. b. can also be referred to as a 'cap and trade' scheme. c. usually involves substantial fines for excessive polluters.

23.6

Testbank to accompany Financial reporting 4e by Loftus et al.

*d. All of the above. General Feedback: Learning objective 23.5: evaluate the implications of climate change for accounting. 19. The IASB project on accounting for carbon emissions: a. does not exist. *b. remains unresolved. c. is complete with the release of IFRS 4. d. is currently an exposure draft (ED133/A.. General Feedback: Learning objective 23.5: evaluate the implications of climate change for accounting. 20. Climate change has the ability to impact on traditional financial accounting in what way? a. Valuation of liabilities. b. Impairment of assets. c. Disclosure of risks. *d. All of the above General Feedback: Learning objective 23.5: evaluate the implications of climate change for accounting.

23.7

Chapter 24: Foreign currency transactions and forward exchange contracts Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 24: Foreign currency transactions and forward exchange contracts Multiple choice questions 1. The main issue in accounting for foreign currency transactions is: *a. how to treat any foreign exchange differences that arise when assets or liabilities are remeasured at the end of the reporting period using the closing rate. b. how to translate the financial statements of a foreign operation. c. how to distinguish between denomination currency or settlement currency. d. how to record transactions with foreign operations. General Feedback: Learning objective 24.1: explain the need to translate foreign currency transactions and describe the functional currency of a company. 2. According to AASB 121, all the following items are 'monetary items' except for: a. borrowings 60 000. b. trade payable of £100 000. c. trade receivable of US$24 000. *d. shares held in BHP Ltd listed on the ASX. General Feedback: Learning objective 24.1: explain the need to translate foreign currency transactions and describe the functional currency of a company. 3. For a company that has A$ as its functional currency, which of the following is not a foreign currency transaction? a. goods sold at prices denominated in UK pounds b. equipment sold at prices denominated in Japanese Yen. *c. inventory sold to a customer in Hong Kong who pays in A$. d. borrowing funds where amounts are payable in NZ$. General Feedback: Learning objective 24.1: explain the need to translate foreign currency transactions and describe the functional currency of a company. 4. The accounting standard, AASB 121 The Effects of Changes in Foreign Exchange Rates, covers which of the following? a. Treatment of any exchange differences that arise. © John Wiley and Sons Australia, Ltd 2022

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Testbank to accompany Financial reporting 4e by Loftus et al.

b. Subsequent measurement of assets and liabilities at the end of the reporting period. c. Initial recognition and measurement of financial statement elements arising from foreign currency transactions. *d. All of these options. General Feedback: Learning objective 24.1: explain the need to translate foreign currency transactions and describe the functional currency of a company. 5. The Australian Financial News quoted A$1.00 equals US$1.15/1.18. What does this represent? a. A bid rate of A$1.15. b. A bid rate of US$1.18. c. An offer rate of A$1.18. *d. An offer rate of US$1.18. General Feedback: Learning objective 24.2: explain how exchange rates function. 6. The exchange rate used at the end of the reporting period is: a. the spot rate. *b. the closing rate. c. the ending rate. d. the indirect rate. General Feedback: Learning objective 24.2: explain how exchange rates function. 7. The Australian financial news quoted US$1.00 equals A$0.8836/0.9105. What does this represent? *a. The direct form of quotation. b. A bid rate of A$0.9105. c. An offer rate of A$0.8836. d. A bid-ask spread of A$0.0269. General Feedback: Learning objective 24.2: explain how exchange rates function. 8. Revenues and expenses denominated in a foreign currency, if assumed to be earned or incurred evenly during the financial period, and translated using the:

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Chapter 24: Foreign currency transactions and forward exchange contracts Not for distribution in full. Instructors may assign selected questions in their LMS.

a. exchange rate at the beginning of the financial period. b. exchange rate at the end of the financial period. *c. average exchange rate for the financial period. d. exchange rate at the transaction date. General Feedback: Learning objective 24.3: prepare entries for the initial measurement of foreign currency items at transaction date. 9. FOB is the term of agreement whereby the seller retains ownership while the goods are in transit and the buyer obtains ownership when the goods have been received into its store. a. origin. *b. destination. c. foreign country. d. shipping point. General Feedback: Learning objective 24.3: prepare entries for the initial measurement of foreign currency items at transaction date. 10. Outback Limited, an Australian company, purchased machinery from Southern Ranches Limited, a US company, on credit terms for US$600 000. At the transaction date, the exchange rate was US$1 = A$1.20. The journal entry recorded by Outback Limited for this purchase would be: *a. DR Machinery $720 000; CR Payable to Southern Ranches Limited $720 000. b. DR Machinery $600 000; CR Payable to Southern Ranches Limited $600 000. c. DR Receivable from Southern Ranches Limited $600 000; CR Cash $600 000 d. DR Machinery $720 000; CR Cash $720 000 General Feedback: Learning objective 24.3: prepare entries for the initial measurement of foreign currency items at transaction date. 11. Subsequent measurement of items resulting from a foreign currency transaction depend on whether the items are: a. foreign or local. *b. monetary or non-monetary. c. classified as current or non-current. d. initially measured using the correct exchange rate. General Feedback:

24.4

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 24.4: define and describe monetary and non-monetary items. 12. Monetary items include the following except for: a. payables for goods purchased. b. accounts receivable. *c. financial assets. d. borrowings. General Feedback: Learning objective 24.4: define and describe monetary and non-monetary items. 13. Which of the following statements is not true in relation to the monetary and non-monetary items? a. An obligation to pay a fixed number of dollars is a monetary item. b. Loan funds provided to another entity in a foreign country is a monetary item. c. Shares held in companies do not constitute a monetary item. *d. Inventories purchased from a foreign country are considered as a monetary item. General Feedback: Learning objective 24.4: define and describe monetary and non-monetary items. 14. A decrease in the direct rate of US$1 to A$# results in: a. an exchange loss. *b. a decrease in A$ amount for a payable in US$. c. an increase in A$ amount for receivable in US$. d. an increase in US$ amount for a payable in A$. General Feedback: Learning objective 24.5: describe how foreign exchange differences affect monetary assets or liabilities. 15. An exchange difference is 'realised': a. on initial recognition of a monetary asset. b. on remeasurement of a monetary liability at the end of the reporting period. *c. when the exchange rate changes between initial recognition and cash settlement. d. when the exchange rate changes between initial recognition and end of reporting period. General Feedback:

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Chapter 24: Foreign currency transactions and forward exchange contracts Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 24.5: describe how foreign exchange differences affect monetary assets or liabilities. 16. Which one of the following statements is not true in relation to the foreign exchange differences for monetary items? a. Decrease in direct exchange rate results in the decrease in the translated amount of the accounts receivable. *b. Unrealised exchange differences need to be recognised in the year of transaction. c. Exchange differences arising on the settlement of monetary items shall be recognised in profit or loss. d. Increase in direct exchange rate results in a foreign exchange loss from the accounts payable. General Feedback: Learning objective 24.5: describe how foreign exchange differences affect monetary assets or liabilities. 17. At the date of the transaction, a foreign currency monetary item is initially recognised and measured using: *a. the spot exchange rate. b. US dollars. c. the closing rate. d. the foreign currency monetary value. General Feedback: Learning objective 24.6: prepare entries for the subsequent measurement of monetary items that are denominated in foreign currency. 18. At the end of the reporting period, a foreign currency monetary item is remeasured using: a. US dollars. *b. the closing rate. c. the spot exchange rate. d. the foreign currency monetary value. General Feedback: Learning objective 24.6: prepare entries for the subsequent measurement of monetary items that are denominated in foreign currency. 19. On 25 June, Wattle Ltd acquires equipment on credit terms from a New Zealand supplier, Timaru Ltd, for NZ$240 000. The exchange rate at 25 June was NZ$1.00 = A$095. On 30 June the exchange

24.6

Testbank to accompany Financial reporting 4e by Loftus et al.

rate is NZ$1.00 = A$0.90. Wattle Ltd pays Timaru Ltd in full on 7 July when the exchange rate is NZ$1.00 = A$0.92. The journal entry recorded by Wattle Ltd for the purchase of the equipment on 25 June is: a. DR Equipment A$240 000; CR Cash A$240 000 *b. DR Equipment A$228 000; CR Payable to Timaru Ltd A$228 000 c. DR Equipment A$216 000; CR Payable to Timaru Ltd A$216 000 d. DR Equipment A$220 800; CR Payable to Timaru Ltd A$220 800 General Feedback: Learning objective 24.6: prepare entries for the subsequent measurement of monetary items that are denominated in foreign currency. Feedback: NZ$240 000 x A$0.95 = A$228 000 20. On 25 June, Wattle Ltd acquires equipment on credit terms from a New Zealand supplier, Timaru Ltd, for NZ$240 000. The exchange rate at 25 June was NZ$1.00 = A$095. On 30 June the exchange rate is NZ$1.00 = A$0.90. Wattle Ltd pays Timaru Ltd in full on 7 July when the exchange rate is NZ$1.00 = A$0.92. The journal entry recorded by Wattle Ltd to remeasure the outstanding foreign currency monetary unit at 30 June is: a. DR Foreign Exchange Loss A$13 235; Payable to Timaru Ltd A$13 235 b. DR Payable to Timaru Ltd A$13 235; Foreign Exchange Gain A$13 235 c. DR Foreign Exchange Loss A$9 000; Payable to Timaru Ltd A$9 000 *d. DR Payable to Timaru Ltd A$9 000; Foreign Exchange Gain A$9 000 General Feedback: Learning objective 24.6: prepare entries for the subsequent measurement of monetary items that are denominated in foreign currency. Feedback: At 25 June: NZ$240 000 x A$0.95 = A$228 000. At 30 June: NZ$240 000 x A$0.90 = A$216 000. FX Gain = A$228 000 - A$216 000 = A$12 000 21. On 20 June, Jacaranda Ltd acquires equipment on credit terms from a New Zealand supplier, Dunedin Ltd, for NZ$180 000. The exchange rate at 20 June was NZ$1.00 = A$0.85. On 30 June the exchange rate is NZ$1.00 = A$0.80. Jacaranda Ltd pays Dunedin Ltd in full on 14 July when the exchange rate is NZ$1.00 = A$0.82. The journal entry recorded by Jacaranda Ltd to remeasure the foreign currency monetary unit at settlement date of 14 July is: a. DR Payable to Dunedin Ltd A$5488; CR Foreign Exchange Gain A$5488 *b. DR Foreign Exchange Loss A$3600; CR Payable to Dunedin Ltd A$3600 c. DR Foreign Exchange Loss A$5488; CR Payable to Dunedin Ltd A$5488 d. DR Payable to Dunedin Ltd A$3600; CR Foreign Exchange Gain A$3600 General Feedback:

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Chapter 24: Foreign currency transactions and forward exchange contracts Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 24.6: prepare entries for the subsequent measurement of monetary items that are denominated in foreign currency. 22. The following assets can be defined as 'qualifying assets' except for: *a. inventories purchased ready for sale. b. power generation facilities c. investment properties. d. manufacturing plants. General Feedback: Learning objective 24.7: prepare entries for the subsequent measurement of non-monetary items that are denominated in foreign currency. 23. On 28 March 2022, Blue Gum Ltd acquired land in California for a cash consideration of US$400 000. At 30 June 2022 the land is revalued to a fair value of US$500 000. The relevant exchange rates are: 28 March 2022 US$1.00 = A$1.15 30 June 2022 US$1.00 = A$1.10 On 30 June 2022, Blue Gum Ltd will record a revaluation gain on the land for: a. A$100 000 *b. A$160 000 c. A$200 000 d. A$217 948 General Feedback: Learning objective 24.7: prepare entries for the subsequent measurement of non-monetary items that are denominated in foreign currency. Feedback: US$400 000 x A$1.15 = A$460 000; US$500 000 x A$1.10 = A$550 000 Increase in value of land is A$90 000 24. On 1 June 2022, Dubbo Ltd acquires inventories for cash of US$400 000. All of the inventories are still on hand at 30 June 2022 and have a net realisable value at that date of US$420 000. Relevant exchange rates are: 1 June 2022 US$1.00 = A$1.30 30 June 2022 US$1.00 = A$1.20 The journal entry recorded by Dubbo Ltd to remeasure the inventories at 30 June 2022 is: *a. DR Inventories write-down expense A$16 000; CR Inventories A$16 000 b. DR Inventories write-down expense A$42 000; CR Inventories A$42 000 c. DR Inventories A$42 000; CR Gain on revaluation (OCI) A$42 000 © John Wiley and Sons Australia, Ltd 2022

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Testbank to accompany Financial reporting 4e by Loftus et al.

d. DR Inventories A$16 000; CR Gain on revaluation (OCI) A$16 000 General Feedback: Learning objective 24.7: prepare entries for the subsequent measurement of non-monetary items that are denominated in foreign currency. Feedback: US$400 000 x A$1.30 = A$520 000; US$420 000 x A$1.20 = A$504 000. Decrease in value of inventories = A$16 000 25. On 1 July 2022, Jimbour Ltd enters a loan agreement with the Bank of New Zealand to borrow NZ$200 000. The funds are to be used to purchase materials needed for the construction of a manufacturing plant. By 31 December 2022, additional costs of A$75 000 have been paid to complete the manufacturing plant. Interest on the funds borrowed is payable half-yearly in arrears at the fixed interest rate of 5% p.a. Relevant exchange rates are: 1 July 2022 NZ$1.00 = A$0.75 Average July to December 2022 NZ$1.00 = A$0.77 31 December 2022 NZ$1.00 = A$0.85 Average January to June 2023 NZ$1.00 = A$0.80 30 June 2023 NZ$1.00 = A$0.70 The interest expense and any foreign exchange gain or loss on the interest at 31 December 2022 is: a. Interest expense A$3 850; Foreign exchange gain A$400 *b. Interest expense A$3 850; Foreign exchange loss A$400 c. Interest expense A$6 494; Foreign exchange loss A$611 d. Interest expense A$6 494; Foreign exchange gain A$611 General Feedback: Learning objective 24.7: prepare entries for the subsequent measurement of non-monetary items that are denominated in foreign currency. Feedback: Half-yearly interest = NZ$200 000 x 5% x ½ = NZ$5 000. Interest expense to 31/12/22 = NZ$5 000 x Avg rate of A$0.77 = A$3 850. Interest amount at closing rate = NZ$5 000 x A$0.85 = A$4 250. Exchange loss on interest expense = A$3850 - A$4250 = A$(400). 26. Foreign exchange risk may relate to: a. recognised assets and liabilities. b. unrecognised firm commitments. c. planned foreign currency transactions. *d. all of the above. General Feedback: Learning objective 24.8: explain what is meant by 'foreign exchange risk' and the circumstances in which it can arise.

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Chapter 24: Foreign currency transactions and forward exchange contracts Not for distribution in full. Instructors may assign selected questions in their LMS.

27. AASB 121/IAS 21 mandates the immediate recognition method where exchange differences on monetary items are recognised in the profit or loss in the period of exchange rate movement. Which of the following is one of possible benefits of the immediate recognition method to reduce the foreign exchange risk? *a. The immediate recognition method makes the effects of foreign exchange risk transparent in the financial report. b. The immediate recognition method reduces the effects of fluctuations in exchange rates over period. c. The immediate recognition method mitigates the foreign exchange risk as it does not include the unrecognised firm commitments. d. The immediate recognition method allocates the effect of an exchange rate change to periods other than the period in which the event occurs. General Feedback: Learning objective 24.8: explain what is meant by 'foreign exchange risk' and the circumstances in which it can arise. 28. If an Australian company enters a forward exchange contract to buy US$30 000, then which of the following applies? a. The company's forward contract will act as a hedge against a recognised asset. *b. The company's contractual obligation (at the forward rate) and contractual right (at the spot rate) are settled on a net basis. c. The company has a contractual obligation to deliver foreign currency at the settlement date and that obligation is realised at the spot rate. d. The company has a contractual right to receive US$30 000 at the settlement date and that right is an asset fixed in A$ at the forward rate. General Feedback: Learning objective 24.9: describe a 'forward exchange contract'. 29. On 1 May 2022, Ocean Blue Ltd enters a forward exchange contract to sell US$180 000 in 8 months' time at 31 December 2022. The relevant exchange rates are:

The journal entry required at 30 June 2022 to record any foreign exchange gain or loss on the forward contract is: a. DR Loss of forward contract A$5400; CR Forward contract A$5400 b. DR Loss of forward contract A$5042; CR Forward contract A$5042 © John Wiley and Sons Australia, Ltd 2022

24.10

Testbank to accompany Financial reporting 4e by Loftus et al.

*c. DR Forward contract A$5400; CR Gain on forward contract A$5400 d. No entry is required. General Feedback: Learning objective 24.9: describe a 'forward exchange contract'. 30. On 1 May 2022, Ocean Blue Ltd enters a forward exchange contract to sell US$180 000 in 8 months' time at 31 December 2022. The relevant exchange rates are:

The premium (or discount) on the exchange rate at 30 June 2022 is: a. Premium of $0.02 b. Discount of $0.03 *c. Premium of $0.04 d. Discount of $0.05 General Feedback: Learning objective 24.9: describe a 'forward exchange contract'. 31. The formal documentation of a hedging relationship must include identification of: I.The hedging instrumentII.The hedged itemIII.The nature of the risk being hedged IV.How the entity will assess hedge effectiveness@ Learning objective 24.10: explain hedge accounting. *a. I, II, III and IV. b. I, II and III only. c. I, II and IV only. d. II, III and IV only. 32. Which of the following is not an example of a fair value hedge? a. a forward contract to buy US$ hedging a recognised trade payable in US$. b. a forward contract to sell US$ hedging a recognised loan receivable in US$. c. a forward contract to sell US$ hedging a recognised trade receivable in US$. *d. a forward contract to buy US$ hedging a highly probable purchase of inventory in US$. General Feedback: Learning objective 24.10: explain hedge accounting.

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Chapter 24: Foreign currency transactions and forward exchange contracts Not for distribution in full. Instructors may assign selected questions in their LMS.

33. Hedge effectiveness is ascertained from: a. an economic relationship between the hedging instrument and the hedged item. b. the effect of credit risk does not dominate the economic relationship hedging instrument and the hedged item. c. the hedge ratio of the hedging relationship reflects actual quantities and is consistent with the purpose of hedge accounting. *d. all of the options are correct. General Feedback: Learning objective 24.10: explain hedge accounting. 34. Which of the following is not an example of a cash flow hedge? *a. a forward contract to buy US$ hedging recognised borrowings in US$. b. a forward contract to sell US$ hedging a highly probable sale of inventory in US$. c. a forward contract to buy US$ hedging future interest payments on variable rate debt in US$. d. a forward contract to buy US$ hedging an unrecognised firm commitment to purchase goods in US$. General Feedback: Learning objective 24.10: explain hedge accounting. 35. The type of hedge which is of the exposure to the variability in cash flows that is attributable to a particular risk that is associated with all, or some component of, a recognised asset or liability is a: a. fair value hedge *b. cash flow hedge c. hedge of a net investment in a foreign operation d. all of the above General Feedback: Learning objective 24.10: explain hedge accounting. 36. The degree to which changes in the fair value of a forward contract offset changes in the fair value or cash flows of a hedged item, describes: a. hedge exposure. b. transaction exposure. *c. hedge effectiveness. d. transaction variability.

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Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 24.10: explain hedge accounting. 37. A forward contact to buy US$450 000 for a planned purchase transaction of US$600 000 has a hedge ratio of: a. 25%. *b. 75%. c. 15%. d. 133%. General Feedback: Learning objective 24.10: explain hedge accounting. 38. AASB 121 requires which of the following to be disclosed in the financial reports? a. Any change in functional currency and reason for change. b. The net exchange differences recognised in OCI and accumulated in a separate component of equity. c. The amount of exchange differences recognised in the profit or loss for the period other than those that relate to financial instruments measured at fair value through profit or loss. *d. All of the above. General Feedback: Learning objective 24.11: describe the disclosures relating to foreign currency transactions required in the financial report. 39. When there is a change in the functional currency, the entity shall ________________ a. disclose the change as a change in accounting policy. b. remeasure the amount of exchange differences recognised in the profit or loss. *c. disclose the fact and the reasons for the change. d. apply the effect of the changes retrospectively. General Feedback: Learning objective 24.11: describe the disclosures relating to foreign currency transactions required in the financial reports.

24.13

Chapter 25: Translation of foreign currency financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 25: Translation of foreign currency financial statements Multiple choice questions 1. The financial statements of a foreign subsidiary with an Australian parent company must: a. remain in the foreign currency for the purposes of consolidating the financial statements of the Australian parent company. *b. be translated into Australian dollars for the purposes of consolidating the financial statements of the Australian parent company. c. be translated into Australian dollars for the purposes of presenting the financial statements in the country of its foreign operations. d. None of these options are correct. General Feedback: Learning objective 25.1: discuss the need for translation of foreign entities' financial statements. 2. According to AASB 121 The Effects of Changes in Foreign Exchange Rates, the currency of the primary economic environment in which the foreign entity operates is the: a. local currency. b. foreign currency. *c. functional currency. d. presentation currency. General Feedback: Learning objective 25.2: explain the difference between functional and presentation currencies. 3. Which of the following is not an activity economic indicator for determining the functional currency? a. Autonomy. *b. Retention of funds. c. Intercompany transactions. d. Servicing of debt obligations. General Feedback: Learning objective 25.2: explain the difference between functional and presentation currencies. 4. Which of the following factors should be considered when determining the functional currency? a. Which currency mainly influences the costs of labour and materials? b. Which currency mainly influences the selling price of the goods and services provided?

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Testbank to accompany Financial reporting 4e by Loftus et al.

*c. Which country has the most influence over competitive forces and regulations for the sales price of the goods and services? d. All of these options should be considered. General Feedback: Learning objective 54.2: explain the difference between functional and presentation currencies. 5. According to AASB 121 The Effects of Changes in Foreign Exchange Rates, the currency in which the financial statements are presented by the reporting entity is the: a. economic currency. b. domestic currency. c. functional currency. *d. presentation currency. General Feedback: Learning objective 25.2: explain the difference between functional and presentation currencies. 6. Which of the following statements is not correct? a. When the functional currency of the foreign operation is its local currency, no translation process is necessary. *b. The method used to translate the local currency into the presentation currency is referred to as the temporal method. c. The method used to translate the functional currency into the presentation currency is referred to as the current rate method. d. When the functional currency of the foreign operation is the currency of a third country, the first translation is made from the local currency to the functional currency of a third country. General Feedback: Learning objective 25.3: understand the main methods used in the translation process. 7. Indicators pointing towards the local overseas currency as the functional currency include: I. Parent's cash flows are directly affected on a current basis. II. Production costs are determined primarily by local conditions. III. Sales prices are primarily responsive to exchange rate changes in the short-term. IV. Cash flows are primarily in the local currency and do not affect the parent's cash flows. *a. II and IV only. b. I and III only. c. I, III and IV only. d. I, II and IV only.

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Chapter 25: Translation of foreign currency financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 25.3: understand the main methods used in the translation process. 8. When translating into the functional currency, foreign currency denominated non-monetary items measured using historical cost must be translated using the: a. rate current at end of reporting period. b. average rate for the reporting period. *c. exchange rate at the date of the transaction. d. rate prevailing at the end of the previous financial year. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 9. Monetary items are best described as: a. plant and equipment. b. all items that are contingent in nature. c. all intangible items including goodwill. *d. units of currency held and assets and liabilities to be received or paid in fixed numbers of currency units. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 10. Post-acquisition date retained earnings that are denominated in a foreign currency are: a. translated into the functional currency using the average rate since acquisition date. *b. balances carried forward from translation of previous statement of comprehensive income and do not need to be translated. c. translated into the functional currency using the rates at the end of each year since acquisition date. d. translated into the functional currency using the rate current at the latest end of reporting period. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 11. When translating into the functional currency, monetary liabilities are translated using the:

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Testbank to accompany Financial reporting 4e by Loftus et al.

a. exchange rate prevailing at the end of the last reporting period. b. exchange rate current at the date the item was first recorded. *c. exchange rate current at end of reporting period. d. closing exchange rate. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 12. When translating foreign currency denominated financial statements into the functional currency, the exchange differences are recognised: *a. as an item of gain or loss in the statement of profit or loss and other comprehensive income. b. directly in the retained earnings account. c. as a deferred asset or liability. d. as a separate component of equity. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 13. Which of the following items will be regarded as a monetary item when applying the definition provided in AASB 121 The Effects of Changes in Foreign Exchange Rates? a. property, plant and equipment. *b. accounts receivable. c. land and buildings. d. inventories. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 14. When translating the revenue and expenses in the statement of profit or loss and other comprehensive income, theoretically each item of revenue and expense should be translated using the spot exchange rate between the: a. functional currency and the foreign currency on the reporting date. b. presentation currency and the local currency on the transaction date. c. presentation currency and the functional currency on the reporting date. *d. functional currency and the foreign currency on the date the transaction occurred.

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Chapter 25: Translation of foreign currency financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 15. The general rule for translating liabilities denominated in a foreign currency into the functional currency is to: a. first classify the liabilities into current and non-current. *b. first classify the liabilities as monetary or non-monetary. c. translate all liabilities using the current rate existing at end of reporting period. d. translate all liabilities using the rate current on entering into the transaction. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 16. If foreign currency denominated non-monetary items are measured using the fair value method, they must be translated into the functional currency using the: *a. exchange rate at the date when the value was determined. b. exchange rate current at end of reporting period. c. closing exchange rate for the financial year. d. exchange rate at the transaction date. General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 17. Banjo Ltd acquired 100% of Wellington Ltd on 1 July 2023. The balance sheet of Wellington Ltd on that date was as follows:

The balance sheet of Wellington Ltd as at 30 June 2024 is as follows:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Relevant exchange rates are as follows:

If the local currency of Wellington Ltd is New Zealand dollars and the functional currency is Australian dollars the total assets of NZ$1,800,000 would translate into Australian dollars as: a. $1,710,000 b. $1,530,000 *c. $1,560,000 d. $1,620,000 General Feedback: Learning objective 25.4: translate a set of financial statements from local currency into the functional currency and account for exchange differences. 18. Banjo Ltd acquired 100% of Wellington Ltd on 1 July 2023. The balance sheet of Wellington Ltd on that date was as follows:

The balance sheet of Wellington Ltd as at 30 June 2024 is as follows:

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Chapter 25: Translation of foreign currency financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

Relevant exchange rates are as follows:

If the functional currency of Wellington Ltd is New Zealand dollars and the presentation currency is Australian dollars the total assets of NZ$1,800 000 would translate into Australian dollars as: a. $1,560,000 *b. $1,530,000 c. $1,710,000 d. $1,620,000 General Feedback: Learning objective 25.5: translate a set of financial statements from functional currency into the presentation currency and account for exchange differences. 19. When translating into the presentation currency the translation difference is recognised: a. in retained earnings. b. in profit or loss. *c. as a separate component of equity. d. as an asset or liability, depending on whether it is a debit or credit balance. General Feedback: Learning objective 24.5: translate a set of financial statements from functional currency into the presentation currency and account for exchange differences. 20. Bondi Ltd has an investment in Christchurch Ltd. The shares in Christchurch were acquired on 15 April 2014. Christchurch uses the revaluation model to account for equipment. Equipment acquired by Christchurch on 1 May 2017 was revalued on 25 May 2022. The exchange rate used to translate the building into the presentation currency for the year ending 30 June 2022 is the rate that applied on:

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Testbank to accompany Financial reporting 4e by Loftus et al.

a. 15 April 2014. b. 1 May 2017. c. 25 May 2022. *d. 30 June 2022. General Feedback: Learning objective 25.5: translate a set of financial statements from functional currency into the presentation currency and account for exchange differences. 21. When translating from the local to functional currency as opposed to the functional to presentation currency differences arise in relation to the treatment of which of the following? a. Share capital. b. Cost of goods sold. *c. Depreciation expense. d. Accounts receivable. General Feedback: Learning objective 25.5: translate a set of financial statements from functional currency into the presentation currency and account for exchange differences. 22. Zephyr Limited has the following items in its statement of profit or loss and other comprehensive income: NZ$ Revenue 140,000 Cost of goods sold 85,000 Interest expense 14,000 Income tax expense 12,000 All items arose evenly across the year. The following exchange rates applied: End of reporting period NZ$1.00 = A$0.90 Average rate for year NZ$1.00 = A$0.85 The net profit after tax translated into the presentation currency of A$ is: a. $46,750 *b. $24,650 c. $34,118 d. $26,100 General Feedback: Learning objective 25.5: translate a set of financial statements from functional currency into the presentation currency and account for exchange differences. Feedback: NZ$(140 000 -85 000 - 14 000 12 000) x A$0.85

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Chapter 25: Translation of foreign currency financial statements Not for distribution in full. Instructors may assign selected questions in their LMS.

23. Under AASB 121 The Effects of Changes in Foreign Exchange Rates, an entity must disclose which of the following items in particular? I. Whether a change in the functional currency has occurred. II. The amount of exchange differences included in profit or loss of the period. III. The amount of the exchange difference included directly in share capital during the period. IV. The reason for using a presentation currency that is different from the functional currency. a. I and IV only. b. II and III only. c. I, II, III and IV. *d. I, II and IV only. General Feedback: Learning objective 25.6: prepare the disclosures required by AASB 121/IAS 21. 24. Which of the following statements regarding the disclosure is not correct? a. The amount of exchange differences included in profit of loss for the period needs to be disclosed. b. The reason for a change in the functional currency needs to be disclosed. *c. The reason for the subsidiary using a different functional currency needs to be disclosed. d. The net exchange differences accumulated in a component of equity needs to be disclosed. General Feedback: Learning objective 25.6: prepare the disclosures required by AASB 121/IAS 21.

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Chapter 26: Business combinations Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 26: Business combinations Multiple choice questions 1. According to AASB 3/IFRS, all the following are provided as the objectives of the standard, except for: a. which assets and liabilities of the acquired entity will be recognised by the acquirer. b. what happens if the acquirer pays an amount that exceeds the fair value of the net identifiable assets acquired. c. how the assets and liabilities of the acquiree will be measured. *d. What information the acquiree is required to disclose in its financial statements General Feedback: Learning objective 26.1: explain the objective of AASB 3/IFRS 3. 2. A business combination is defined as: a. a transaction in which an acquirer obtains control of an acquiree. b. a transaction in which one entity obtains control of one or more other entities. *c. a transaction or other event in which an acquirer obtains control of one or more businesses. d. a transaction or other event in which an entity obtains control of one or more businesses. General Feedback: Learning objective 26.2: determine whether a transaction is a business combination. 3. AASB 3/IFRS 3 is relevant when accounting for a business combination that: a. involves mutual entities. b. results in the formation of a joint venture. c. involves entities or businesses that are not investor owned. *d. results in an entity acquiring the net assets of another entity. General Feedback: Learning objective 26.2: determine whether a transaction is a business combination. 4. Under AASB 3/IFRS 3, the method of accounting for a business combination is the: a. purchase method. *b. acquisition method. c. joint venture method. d. market value method.

26.2

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 26.3: explain the key steps in the acquisition method. 5. In a business combination, the acquiree is the party that: a. pays the acquisition consideration. b. finances the business combination. *c. gives up control over the net assets acquired. d. obtains control of the net assets the other entity. General Feedback: Learning objective 26.3: explain the key steps in the acquisition method. 6. An acquirer accounting for a business combination must consider: I. Recognition of the liabilities assumed. II. Measurement of the liabilities assumed. III. Recognition of the identifiable assets acquired. IV. Measurement of the identifiable assets acquired. a. I and II only. b. I and III only. c. II and IV only. *d. I, II, III and IV. General Feedback: Learning objective 26.3: explain the key steps in the acquisition method. 7. Which of the following statements is not correct in relation to the determination of a business combination? a. Through the business combination, the acquirer must obtain control of the business acquired. *b. A business must consist of inputs such as economic resources and provide goods and services. c. To be deemed as a business combination, the net assets acquired must be a business. d. A business combination may give rise to the recognition of goodwill. General Feedback: Learning objective 26.4: explain the nature of an acquirer and key factors in the identification of an acquirer. 8. In a business combination, the acquirer is the party that:

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Chapter 26: Business combinations Not for distribution in full. Instructors may assign selected questions in their LMS.

a. sells the acquired entity. *b. obtains control of the other entities. c. receives the acquisition consideration. d. concedes control over the acquired entities. General Feedback: Learning objective 26.4: explain the nature of an acquirer and key factors in the identification of an acquirer. 9. The determination of the acquisition relates to many components of the business combination except for: *a. the physical transfer of control of the business. b. the fair value of identifiable assets acquired, and liabilities assumed. c. the determination of the goodwill. d. any previously held interest in the acquiree. General Feedback: Learning objective 26.5: identify the acquisition date. 10. The acquisition date for a business combination is the date on which: a. the business combination is announced to the public. b. the acquirer announces the acquisition to the acquiree. *c. the acquirer effectively obtains control of the acquiree. d. a substantive agreement between the combining parties is reached. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 11. Where the acquirer purchases assets and assumes liabilities of another entity it does not need to consider measurement of: a. goodwill. b. consideration transferred. c. fair values of identifiable net assets. *d. carrying amounts of identifiable net assets. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer.

26.4

Testbank to accompany Financial reporting 4e by Loftus et al.

12. For a tangible asset to be recognised by an acquirer under a business combination it must be probable that future economic benefits will flow to the acquirer and: a. it must be a current item. b. it may not be a non-monetary asset. *c. its fair value can be reliably measured. d. it must be measured using the present value method. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 13. Which of the following items would not be recognised as an intangible asset in a business combination? *a. experienced marketing team. b. newspaper mastheads. c. patents. d. trademarks. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 14. The net amount of employee benefit liabilities acquired in a business combination are measured by using the: a. estimated total of future cash outflows, undiscounted. b. face value of the liabilities. *c. present value method. d. cash method. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 15. Kingscliff Limited estimated that the net present value of future cash flows from machinery acquired in a business combination is $70The cost of replacing the machinery is estimated to be $76The machinery has been independently appraised at a value of $68A similar item of machinery cost the acquirer $78last year. The value at which the machinery will be recognised when recording the business combination is:

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Chapter 26: Business combinations Not for distribution in full. Instructors may assign selected questions in their LMS.

a. $76 000. b. $78 000. *c. $68 000. d. $70 000. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 16. Byron Limited estimated the net present value of future cash flows from specialised equipment acquired under a business combination to be $120A replacement cost for the equipment is estimated to be $132The equipment has been independently appraised at a value of $122A similar item of equipment cost the acquirer $118last year. What is the value for recognition of the equipment under a business combination? a. $118 *b. $122 c. $120 d. $132 General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 17. When accounting for a business combination a contingent liability is recognised if: *a. its fair value can be measured reliably. b. it is a possible obligation and it is probable that it will occur. c. it is a present obligation that has failed to meet the recognition criteria. d. it is probable that an outflow of resources may occur in order to settle the obligation. General Feedback: Learning objective 26.6: explain when to recognise and how to measure the identifiable assets acquired and liabilities assumed by an acquirer. 18. If shares are issued as part of the consideration paid, transactions costs such as brokerage fees may be incurred. Under AASB 3/IFRS 3 Business Combinations, the appropriate accounting treatment for such costs in the records of the acquirer is a debit to: a. cash. b. investments. *c. share capital.

26.6

Testbank to accompany Financial reporting 4e by Loftus et al.

d. acquisition expenses. General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase. 19. The consideration transferred in a business combination is measured as the fair value of the: *a. consideration given. b. net assets acquired. c. costs directly attributable to the combination. d. consideration given plus directly attributable costs. General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase. 20. Watson Limited acquires the net assets of Lake Limited for a cash consideration of $160One half is to be paid on acquisition date and the other half is payable in one year's time. The appropriate discount rate is 8% p.a. The present value of the cash outflow in one year's time is: a. $800 000 *b. $74 072 c. $86 402 d. $72 728 General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase. Feedback: ($160 000/2) x 0.9259 21. Under AASB 3/IFRS 3 Business Combinations, a gain on bargain purchase arises when the acquirer's interest in the fair value of the acquiree's identifiable assets and liabilities is: a. less than the consideration transferred. *b. greater than the consideration transferred. c. less than the carrying amount of the net assets acquired. d. more than the book values of the identifiable assets acquired. General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase.

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Chapter 26: Business combinations Not for distribution in full. Instructors may assign selected questions in their LMS.

22. Mary Limited acquired the identifiable assets and liabilities of Joan Limited for $530000. The items acquired, stated at fair value, are: equipment $296; inventories $160 000; accounts receivable $104; patents $60; accounts payable $80The difference on acquisition is: a. goodwill of $10 000 b. goodwill of $170 000 *c. gain on bargain purchase $10 000 d. gain on bargain purchase $170 000 General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase. Feedback: 530 000 - (296 000 + 160 000 + 104 000 + 60 000 - 80 000) = (10 000) 23. Goodwill arising in a business combination is classified as a(n): *a. asset. b. liability. c. expense associated with the acquisition. d. item in equity. General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase. 24. Goodwill is measured as the difference between the: a. cost of the assets given up, and the cost of the net assets acquired. b. cost of the net assets acquired, and the net present value of the consideration given up. c. present value of the consideration transferred, and the present value of the net assets acquired *d. fair value of the consideration transferred, and the fair value of the assets and liabilities acquired. General Feedback: Learning objective 26.7: discuss the nature of goodwill and how it is measured as well as how to measure a gain on bargain purchase. 25. The information contained within Appendix B of AASB 3/IFRS 3 in relation to disclosure: a. is not mandatory, but contains optional additional disclosures. *b. is an integral part of AASB 3/IFRS 3. c. contains prescribed presentation formats for disclosure of business combinations.

26.8

Testbank to accompany Financial reporting 4e by Loftus et al.

d. is complementary to the main disclosure requirements within the body of AASB 3/IFRS 3. General Feedback: Learning objective 26.8: identify the disclosures required by AASB 3/IFRS 3. 26. Appendix B of AASB 3/IFRS 3 requires disclosure of which of the following? I. A qualitative description of the factors that make up goodwill. II. Details of contingent consideration. III. The date of exchange. IV. Carrying amounts of assets and liabilities in business combinations where shares are acquired. *a. I, II and IV only. b. I, III and IV only. c. I, II and III only. d. I, II, III and IV. General Feedback: Learning objective 26.8: identify the disclosures required by AASB 3/IFRS 3.

26.9

Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 27: Consolidation: controlled entities Multiple choice questions 1. Financial statements that combine the separate sets of financial statements for all entities within an economic entity are known as: a. concise financial reports. b. condensed financial reports. c. combined financial statements. *d. consolidated financial statements. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 2. For the purposes of consolidated financial statements, a group consists of: a. an investor and its investees. *b. a parent entity and all its subsidiaries. c. an entity that is controlled by a parent. d. an entity that has one or more subsidiaries. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 3. The entity that is represented by a single set of consolidated financial statements is the: a. legal entity. b. parent entity. *c. economic entity. d. subsidiary entity. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 4. The consolidated financial statements reflect the effects of transactions: *a. with external parties to the group only. b. between internal parties to the group only. c. with some internal and external parties to the group. d. both between internal parties and with external parties to the group. General Feedback:

27.2

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 27.1: explain the purpose of consolidated financial statements. 5. When preparing consolidated financial statements, what is the name given to the combined entities that are made up of a parent entity and all its subsidiary entities? a. Consolidation b. Combination c. Associates *d. Group General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 6. A subsidiary is an entity that: *a. is controlled by another entity. b. exercises control over a parent entity. c. has the power to control a parent entity. d. has significant influence over a parent entity. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 7. When one entity controls another entity, the business combination results in which of the following types of relationship? a. Investor-investee. *b. Parent-subsidiary. c. Investor-associate. d. Parent-child. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements.

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Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

8. AASB 10/IFRS 10 Consolidated Financial Statements defines a 'parent' and a 'subsidiary' as which of the following?

a. I. *b. II. c. III. d. IV. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 9. A group may: *a. only have one parent. b. have more than one parent. c. have a few different sub-groups. d. only have one parent, but it may have a few different sub-group. General Feedback: Learning objective 27.1: explain the purpose of consolidated financial statements. 11. The key characteristic that determines when consolidated financial statements should be prepared is: *a. control. b. significant influence. c. substance over form. d. the existence of transactions between the entities. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 12. In a consolidated group of entities, control over the subsidiaries in the group: a. requires 100% ownership of the subsidiaries' shares.

27.4

Testbank to accompany Financial reporting 4e by Loftus et al.

b. can exist where the rights are purely protective rights. *c. may not be shared control. d. can be shared with other entities. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 13. With regards to the concept of control, power over an investee: a. means the ability to significantly influence the investee. *b. is related to relevant activities of the investee. c. arises from potential rights. d. means directing the investee. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 14. According to AASB 10/IFRS 10 Consolidated Financial Statements, which of the following factors indicate the existence of control?

a. I, II and IV only. *b. I and III only. c. II and IV only. d. II only. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 15. Which of the following is not one of the three elements of control according to AASB 10/IFRS 10 Consolidated Financial Statements? a. The ability to use power over the investee to affect the amount of the investor's returns. b. Exposure, or rights, to variable returns from involvement with the investee. *c. Dominating the decision making of the investee. d. Power over the investee.

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Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 16. In the context of control, relevant activities are: *a. activities of the investee that significantly affect the investee's returns. b. activities of the investor that significantly affect the investor's returns. c. activities of the investor that significantly affect the investee's returns. d. activities of the investor that are similar to the investee's activities. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 17. In the context of control, examples of relevant activities include: a. managing financial assets. b. selling and purchasing goods and services. c. determining a funding structure or obtaining funding. *d. all of the options are examples of relevant activities. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 18. Examples of rights that determine the existence of power include: a. rights to direct the investee to enter into, or veto any changes to, transactions that affect the investee's returns. b. rights to appoint, reassign or remove members of an investee's key management personnel c. rights to appoint or remove another entity that participates in management decisions. *d. all of the options are correct.

General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 19. At balance date, Company K has 40% of the voting rights in Company L. In addition, Company K holds potential voting rights in Company L amounting to 8% that are currently exercisable, and a further 12% of voting rights in Company L that can be exercised in two years' time. Which of the following statements is correct? © John Wiley and Sons Australia, Ltd 2022

27.6

Testbank to accompany Financial reporting 4e by Loftus et al.

*a. Consolidated financial statements need not be prepared for Company K and L for the current year. b. Consolidated financial statements must be prepared for Company K and L in the current year. c. Consolidated financial statements must be prepared as Company K controls Company L at balance date. d. Consolidated financial statements must be prepared as Company K has more than half of the voting rights in Company L at balance date. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 20. In determining the existence of power, together with size of the investor's voting interest, the following factors need to be examined in relation to the holders of the other shares in the investee: a. the existence of contracts. b. attendance at annual general meetings. c. level of dilution and disorganization or apathy of the remaining shareholders. *d. all of the above factors need to be examined. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 21. When deciding whether or not one entity controls another entity: a. the controlling entity must be actively involved in the decision making of the other entity. b. the controlling entity must have exercised its power to control. *c. it is sufficient that the controlling entity has the capacity to control. d. the controlling entity must have exerted its control over the financing policies of the other entity. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 22. The equity in a subsidiary that is not attributable to a parent is known as a/an: a. external interest. b. attributable interest. c. non-direct interest. *d. non-controlling interest. General Feedback:

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Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 27.2: discuss the meaning and application of the criterion of control. 23. In the context of control, the correct statement regarding rights is: a. They must be protective rights. *b. They must be substantive rights. c. They must arise from a legal contract. d. They must arise as a result of future events. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 24. Under paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements, factors to consider in assessing whether the rights over an investee are substantive include: a. whether there are any barriers that prevent the investor from exercising them. b. where more than one party is involved, whether there is a mechanism in place to enable those parties to practically exercise them. c. whether the party or parties that hold the rights would benefit from the exercise of those rights. *d. all of the options are correct. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 25. Protective rights include: a. the right of a party holding a non-controlling interest in an investee to approve capital expenditure greater than that required in the ordinary course of business, or to approve the issue of equity or debt instruments. b. the right of a lender to seize the assets of a borrower if the borrower fails to meet specified loan repayment conditions. c. a lender's right to restrict a borrower from undertaking activities that could significantly change the credit risk of the borrower to the detriment of the lender. *d. all of the options are correct. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 26. North Bank has lent Sophie Limited $600 000. Part of the loan contract prevents Sophie from borrowing money in the future from other banks without the permission of North. As a result of this relationship:

27.8

Testbank to accompany Financial reporting 4e by Loftus et al.

a. North Bank is regarded as a parent entity of Sophie Limited. b. Sophie Limited is regarded as a subsidiary of North Bank. *c. a parent-subsidiary relationship does not exist between these two parties. d. a parent-subsidiary relationship exists between these two parties as North Bank is able to direct the relevant activities of Sophie Limited. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 27. Rights to variable returns from an investee include: a. returns from denying or regulating access to a subsidiary's assets. b. economies of scale. c. remuneration from provision of services. *d. all of the options are correct. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 28. Variable returns from an investee include: a. fixed interest payments from a bond, as they expose the investor to the credit risk of the issuer of the bond, namely the investee b. dividends from ordinary shares that will change based on the profit performance of the investee c. fixed performance fees for management of the investee's assets, as they expose the investor to the performance risk of the investee. *d. all of the options are correct. General Feedback: Learning objective 27.2: discuss the meaning and application of the criterion of control. 29. An agent is: *a. a party primarily engaged to act for the benefit of another party and therefore does not control the investee when it exercises its decision-making authority. b. a party primarily engaged to act for its own benefit. c. a party primarily engaged to act for the benefit of another party. d. a party primarily engaged to act for its own benefit and therefore controls the investee when it exercises its decision-making authority. General Feedback: © John Wiley and Sons Australia, Ltd 2022

27.9

Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 27.2: discuss the meaning and application of the criterion of control. 30. The process of preparing the combined financial statements of a group of entities is known as: a. aggregation. *b. consolidation. c. accumulation. d. combination. General Feedback: Learning objective 27.3: describe the consolidation process. 31. A group of entities comprised of Mark Limited (parent entity), Roger Limited (subsidiary entity) and Graham Limited (subsidiary entity) have the following inventories balances.

Which of the following amounts is shown as the consolidated inventories balance in the consolidated financial statements? a. $70 000. b. $20 000. *c. $160 000. d. $90 000. General Feedback: Learning objective 27.3: describe the consolidation process. 32. The process of preparing consolidated financial statements requires that: a. adjusting journal entries be recorded in the ledger accounts of the parent only. b. adjusting journal entries be recorded in the ledger accounts of the subsidiaries only. c. accruals of expenses and revenues be recorded directly into the retained earnings account of the parent entity. *d. no adjustments be made to the individual financial statements or ledger accounts of the entities in the group. General Feedback: Learning objective 27.3: describe the consolidation process. 33. The process of preparing consolidated financial statements requires that:

27.10

Testbank to accompany Financial reporting 4e by Loftus et al.

a. the individual financial statements of the parent and all its subsidiaries use uniform accounting practices for like transactions and other events in similar circumstances. b. the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent. c. the individual financial statements of the parent and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances. *d. the individual financial statements of the parent and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances and that the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent. General Feedback: Learning objective 27.3: describe the consolidation process. 34. Which of the following statements is not reasons for the adjustments during the process of preparation of consolidated financial statements? a. To eliminate any intragroup transactions which involve account receivables within thr group. *b. To eliminate losses from sales which reduces the equity of the subsidiary. c. To eliminate the intragroup shareholdings as the group as an entity cannot have investment in itself. d. To eliminate the profits generated from the intragroup transactions.. General Feedback: Learning objective 27.3: describe the consolidation process. 35. According to AASB 10/IFRS 10 Consolidated Financial Statements, all parent entities are required to present consolidated statements unless which of the following conditions apply to them? I. The parent is a wholly owned subsidiary. II. The parent's debt or equity securities are traded in a public market. III. The parent is a partly owned subsidiary and its other owners do not object to the non-presentation of consolidated financial statements. IV. The parent is not in the process of applying to issue any securities in a public market. *a. I, III and IV only. b. I and III only. c. I, II and III only. d. I, II, III and IV. General Feedback: Learning objective 27.4: explain the circumstances under which a parent entity may be exempt from preparing consolidated financial statements.

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Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

36. Summer Company is a listed public company and has a 60% controlling interest in Winter Company. Winter Company is the parent of Starlight Company. In which of the following situations will Winter Company not be required to prepare consolidated financial statements? a. Where it is likely that there are external users dependant on the information. b. If Winter Company prepares separate financial statements that comply with IFRS. *c. If the other owners of Winter Company have consented to the non-preparation of consolidated financial statements. d. Winter Company would never be required to prepare consolidated financial statements. General Feedback: Learning objective 27.4: explain the circumstances under which a parent entity may be exempt from preparing consolidated financial statements. 37. Merlion Limited is an entity listed in Singapore. Merlion Limited holds a 100% investment in Kookaburra Pty Ltd, an Australian based company, who in turn holds a 90% interest in Kangaroo Pty Ltd. Kookaburra Pty Ltd and the Kookaburra group (comprising Kookaburra and Kangaroo) are both non-reporting entities. Which of the following statements is correct? a. Kookaburra Pty Ltd will be required to prepare consolidated financial statements as the ultimate Australian parent. b. Kookaburra Pty Ltd will be required to prepare consolidated financial statements only if directed to do so by ASIC. c. Kookaburra Pty Ltd will not be required to prepare consolidated financial statements as Merlion is a listed foreign entity. *d. Kookaburra Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity. General Feedback: Learning objective 27.4: explain the circumstances under which a parent entity may be exempt from preparing consolidated financial statements. 38. White Ltd is a listed public company in Australia and has a 100% controlling interest in Brown Ltd, which is an unlisted company in Australia. Brown Ltd, in turn, holds 100% of controlling interest in Green Ltd, which is a listed company in Australia. In this case, who is required to prepare the consolidated financial statements? a. No entity is required to prepare the consolidated financial statements. b. Green Ltd is required to prepare the consolidated financial statements. c. Brown Ltd is required to prepare the consolidated financial statements. *d. White Ltd is required to prepare the consolidated financial statements. General Feedback:

27.12

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 27.4: explain the circumstances under which a parent entity may be exempt from preparing consolidated financial statements. 39. Under which of the following cases, the ultimate parent is not required to prepare the consolidated financial statement? a. When the ultimate parent has less 80% of controlling interest in subsidiary. b. When the intermediate parent is a listed public entity and prepares the consolidated financial statements *c. When the parent or the group is not a reporting entity. d. When their equity instruments are not traded in a public market. General Feedback: Learning objective 27.4: explain the circumstances under which a parent entity may be exempt from preparing consolidated financial statements. 40. The disclosure requirements in consolidated financial statements are included in which of the following accounting standards? a. AASB 127/IAS 127 Separate Financial Statements. b. AASB 10/IFRS 10 Consolidated Financial Statements. *c. AASB 12/IFRS 12 Disclosure of Interests in Other Entities. d. AASB 10/IFRS 10 Consolidated Financial Statements and AASB 12/IFRS 12 Disclosure of Interests in Other Entities. General Feedback: Learning objective 27.5: discuss the disclosure requirements related to consolidated entities. 41. According to paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, which of the following is an example of a situation where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries? a. where an entity is an agent or a principal. b. where an entity controls another entity but it holds less than half of the voting rights of the other entity. c. where an entity does not control another entity but it holds more than half of the voting rights in the other entity. *d. all of the options are correct. General Feedback: Learning objective 277.5: discuss the disclosure requirements related to consolidated entities.

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Chapter 27: Consolidation: controlled entities Not for distribution in full. Instructors may assign selected questions in their LMS.

42. According to paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity shall disclose information that enables users of its consolidated financial statements to evaluate which of the following? I. The consequences of losing control of a subsidiary. II. The composition of the group. III. The nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group. IV. The interest that non-controlling interests have in the group's activities and cash flows. *a. I and III only b. II and IV only c. I, III and IV only d. I, II, III and IV General Feedback: Learning objective 27.5: discuss the disclosure requirements related to consolidated entities. 43. Where the financial statements of a subsidiary are prepared at a date differing from that of the parent, the group must disclose: a. the date used by the subsidiary. *b. the reason for the parent using a different date. c. the reason for the subsidiary using a different date. d. both the date used by the subsidiary as well as the reason for the subsidiary using a different date. General Feedback: Learning objective 27.5: discuss the disclosure requirements related to consolidated entities. 44. According to paragraph 7 of AASB 12/IFRS 12 Disclosure of Interest in Other Entities, an entity is required to disclose information related to significant judgements and assumptions to determine which of the following? I Whether the entity is an agent or a principal. II Whether the entity loss the control over the other entity. III Whether the entity holds control with less than 50% of voting rights in other entity a. I only b. II only *c. I and III only d. II and III only. General Feedback: Learning objective 27.5: discuss the disclosure requirements related to consolidated entities.

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 28: Consolidation: wholly owned entities Multiple choice questions 1. The preparation of consolidated financial statements involves: a. adjusting entries in the accounting records of the parent. b. adjusting entries in the accounting records of the subsidiary. c. together the financial statements of the investor and the associate. *d. adding together the financial statements of the parent and the subsidiaries. General Feedback: Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 2. If a subsidiary's reporting date does not coincide with the parent entity's reporting date, adjustments must be made for the effects of significant transactions that occur between the two reporting dates provided the reporting dates differ by no more than: a. 1 months. *b. 3 months. c. 6 month. d. 9 months. General Feedback: Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 3. Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the end of the subsidiary's financial period does not coincide with the: *a. the subsidiary will prepare its own financial statements as at the end of the parent's financial period. b. the parent will prepare its own financial statements as at the end of the subsidiary's financial period. c. the parent will prepare its own financial statements as at 30 June if the end of the parent's reporting period is not 30 June. d. the subsidiary will prepare its own financial statements as at 30 June if the end of the parent's reporting period is not 30 June. General Feedback:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 4. Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the parent and the subsidiary do not use the same accounting policies for like transactions in similar circumstances: a. the parent will prepare its own financial statements using the same accounting policies as the subsidiary. b. the subsidiary will prepare its own financial statements using accounting policies that are negotiated with the parent. *c. the subsidiary will prepare its own financial statements using the same accounting policies as the parent. d. all of the options are incorrect. General Feedback: Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 5. During the consolidation process, it may be necessary to make which of the following adjustments to the individual statements? a. pre-acquisition entries only. *b. business combination valuation entries and pre-acquisition entries in the consolidation worksheet. c. business combination valuation entries only. d. business combination valuation entries and pre-acquisition entries in the individual journals of the parent and the subsidiaries. General Feedback: Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 6. The business combination valuation entries are used to recognise: a. the fair value of the assets not recorded in the subsidiary's accounts at acquisition date. b. the fair value of the liabilities not recorded in the subsidiary's accounts at acquisition date. c. the fair value adjustments for assets and liabilities that were recorded in the subsidiary's accounts at acquisition date based on carrying amounts different from fair value. *d. all of the options are correct. General Feedback:

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 7. The pre-acquisition entries are used to: *a. eliminate the investment in the subsidiary and the pre-acquisition equity of the subsidiary. b. eliminate the investment in the subsidiary and the post-acquisition equity of the subsidiary. c. eliminate the pre-acquisition equity of the subsidiary. d. eliminate the post-acquisition equity of the subsidiary. General Feedback: Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 8. Which of following statements is not correct in relation to the consolidation process? a. Subsequent to the acquisition date, any intragroup transactions within the group needs to be adjusted and eliminated. b. The fair value adjustments of assets that were not previously recorded by the subsidiary are recognised in the business combination valuation entries. c. Consolidated financial statements should offset the carrying amount of the parent's investment in the subsidiary. *d. To avoid double counting of the group's equity, the equity of the subsidiary at the acquisition date needs to be eliminated from the records of the subsidiary. General Feedback: Learning objective 28.1: discuss the consolidation process in the case of wholly owned entities and the initial adjustments required in the consolidation worksheet. 9. White Ltd acquired 100% of shares of Plum Ltd. The consolidation worksheet presents following equity items.

How much is the total equity of the group? *a. 72,000 b. 34,000

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Testbank to accompany Financial reporting 4e by Loftus et al.

c. 106,000 d. 49,000 General Feedback: Learning objective 28.2: explain how a consolidation worksheet is used. 10. Kansas Limited has two subsidiary entities, Emma Limited and Goldie Limited. Kansas Limited owns 100% of the shares in both entities. Details of the issued share capital are:

The consolidated share capital amount of the Kansas - Emma - Goldie group is: a. $135 b. $465 c. $165 *d. $300 General Feedback: Learning objective 28.2: explain how a consolidation worksheet is used. 11. Papa Limited has two subsidiary entities, Mumma Limited and Junior Limited. Papa Limited owns 100% of the shares in both entities. Details of the cash accounts of each company are: Papa Limited $160 000, Mumma Limited $85 000, Junior Limited $12 500. The balance of the consolidated cash account of the Papa Limited group is: a. $97 500 b. $160 000 *c. $257 500 d. $62 500 General Feedback: Learning objective 28.2: explain how a consolidation worksheet is used. 12. The consolidation worksheet entries have an impact on: *a. the consolidated financial statements. b. the individual statement of the parent. c. the individual statement of the subsidiaries. d. the individual statements of the parent and its subsidiaries. General Feedback: Learning objective 28.2: explain how a consolidation worksheet is used. © John Wiley and Sons Australia, Ltd 2022

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

13. Which of the following statements is incorrect? a. Where consolidated financial statements are prepared over a number of years, consolidation entries need to be made every time a consolidation worksheet is prepared. b. A consolidation worksheet is used to help the process of adding together the financial statements of the parent and its subsidiaries. *c. Consolidation adjusting entries affect the ledger accounts of the parent and subsidiaries. d. There are no consolidated ledger accounts. General Feedback: Learning objective 28.2: explain how a consolidation worksheet is used. 14. In the case of a wholly owned subsidiary, if the fair value of the consideration transferred plus the fair value of the previously held interest is greater than the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary: *a. goodwill has been purchased and must be recognised on consolidation. b. the difference is treated as a special equity reserve in the acquirer's accounting records. c. the difference is immediately charged to profit or loss in the period in which the business combination occurred. d. a gain on bargain purchase results. General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. 15. Which of the following statements regarding the acquisition analysis is incorrect? a. It determines whether there is goodwill on acquisition or a gain on bargain purchase. b. It is considered the first step in the consolidation process. c. It calculates and compares the fair value of the consideration transferred with the fair value of the net identifiable assets and liabilities acquired. *d. It calculates the fair value of the net identifiable assets and liabilities acquired based on the value of the post-acquisition equity in the subsidiary. General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. 16. Which of the following statements is incorrect?

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Testbank to accompany Financial reporting 4e by Loftus et al.

*a. The business combination valuation reserve is an account recorded in the subsidiary's records. b. The acquisition analysis may include the recognition of assets and liabilities not recognised in the subsidiary's records. c. The acquisition analysis will determine whether any goodwill or gain on bargain purchase has arisen as a part of the business combination. d. An acquisition analysis is prepared at acquisition date to identify the identifiable assets and liabilities of the subsidiary at fair value. General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. 17. The acquisition analysis calculates the fair value of the net identifiable assets and liabilities acquired based on the book value of the pre-acquisition equity of the subsidiary, adjusted for the following: a. previously recorded goodwill in the subsidiary at acquisition date b. fair value adjustments for the assets and liabilities that were recorded in the subsidiary's accounts at acquisition date based on carrying amounts different from fair value c. the fair value of the assets and liabilities not recorded in the subsidiary's accounts at acquisition date *d. all of the options are correct General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. 18. Oceania Limited acquired 100% of the share capital of Broadwater Limited. Broadwater had total shareholder's equity of $250 000. The book values of Broadwater Limited's assets were: buildings $150 000, machinery $90 000. The fair values of these assets were: buildings $180 000, machinery $100 000. The tax rate is 30%. The fair value of the identifiable net assets is: a. $280 000 *b. $278 000 c. $210 000 d. $222 222 General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. Feedback: Equity + BCVR buildings + BCVR machinery = $250 000 + ((180 000 - 150 000) x 0.7) + ((100 000 - 90 000) x 0.7) = $278 000

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

19. Stairwell Limited acquired 100% of the share capital of Bannister Limited for $237 500. Bannister had total shareholder's equity of $200 000. The book values of Bannister Limited's assets were: buildings $100 000, machinery $120 000. The fair values of these assets were: buildings $120 000, machinery $125 000. The tax rate is 30%. The acquisition analysis will determine: a. a goodwill of $37 500. *b. a goodwill of $20 000. c. a gain on bargain purchase of $12 500. d. a gain on bargain purchase of $37 500. General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. Feedback: Consideration transferred - (Equity + BCVR Buildings + BCVR Machinery) = $237 500 - (200 000 + ((120 000 - 100 000) x 0.7) + ((125 000 - 120 000) x 0.7)) = $237 500 - $217 500 = Goodwill $20 000 20. Leather Limited acquired 100% of the share capital of Vinyl Limited for $235 000. Vinyl had total shareholder's equity of $200 000. The book values of Vinyl Limited's assets were: buildings $150 000, machinery $80 000. The fair values of these assets were: buildings $180 000, machinery $90 000. Also, Vinyl Limited has not previously recorded an internally generated trademark with a fair value of $40 000 and a contingent liability related to a warranty with a fair value of $10 000. The tax rate is 30%. The acquisition analysis will determine: a. a goodwill of $35 000. b. a goodwill of $14 000. c. a gain on bargain purchase of $21 000. *d. a gain on bargain purchase of $14 000. General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. Feedback: Consideration transferred - (Equity + BCVR Buildings + BCVR Machinery) = $235 000 - (200 000 + ((180 000 - 150 000) x 0.7) + ((90 000 - 80 000) x 0.7) + (40 000 x 0.7) - (10 000 x .7)) = $235 000 - $249 000 = Gain on bargain purchase $14 000 21. Green Ltd acquired all the share capital (cum dividend) of Light Ltd for $720,000 on 1 July 2023. On 30 June 2023, the financial statement of Light Ltd showed the following balances in its accounts:

At 1 July 2023, all identifiable assets and liabilities of Pebbles Ltd were recorded at amounts equal to fair value, except as follows: © John Wiley and Sons Australia, Ltd 2022

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Testbank to accompany Financial reporting 4e by Loftus et al.

The tax rate is 30%. The acquisition analysis will determine: a. a goodwill of $20,150. *b. a goodwill of $12,150. c. a gain on bargain purchase of $20,150 d. a gain on bargain purchase of $12,150 General Feedback: Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. Feedback: (Consideration transferred - Dividend payable) - (Equity + BCVR Inventory + BCVR Machinery) - Goodwill = $705,000 (730,000 - 25,000) - (500,000 + 175,000 (Equity) + ((75,000 - 79,500) x 0.7) + ((690,000 6600,000)) x 0.7) - Goodwill = $705,000 - $684,850 = Goodwill acquired $20,150 Goodwill acquired - Recorded Goodwill = 20,150 - 8,000 = 12,150 Unrecorded goodwill 22. Rockstone Ltd acquired 20% of the issued shares in Pebbles Ltd on 1 July 2020 for $75,000. Rockstone Ltd uses the fair value method to measure this investment with movements in fair value being recognised as other comprehensive income. At 1 July 2023, the fair value of this investment was $90,000. Rockstone Ltd made an offer to buy the remaining shares in Pebbles Ltd for $385,000 and the offer was accepted on 1 July 2023. On 1 July 2023, the financial statements of Pebbles Ltd showed the following balances in its accounts:

At 1 July 2023, all identifiable assets and liabilities of Pebbles Ltd were recorded at amounts equal to fair value, except as follows:

The tax rate is 30%. The acquisition analysis will determine: a. a gain on bargain purchase of $19,600. b. a gain on bargain purchase of $9,600. c. a goodwill of $19,600 *d. a goodwill of $9,600 General Feedback:

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 28.3: prepare an acquisition analysis for the parent's acquisition of a subsidiary. Feedback: Consideration transferred (fair value of previously held interest + consideration) - (Equity + BCVR Inventory + BCVR Plant and Equipment) - Goodwill = $475,000 (90,000 + 385,000) - (350,000 + 100,000 (Equity) + ((72,000 - 65,000) x 0.7) + ((515,000 500,000)) x 0.7) - Goodwill = $475,000 - $455,400 = Goodwill acquired $19,600 Goodwill acquired - Recorded Goodwill = 19,600 - 10,000 = 9,600 Unrecorded goodwill 23. Forrest Ltd acquired 100% of the share capital of Desert Ltd when the carrying value of Desert Ltd's equipment was $75000. The fair value of the equipment on acquisition date was $90000. The company tax rate was 30%. What is the amount of the business combination valuation reserve that must be recognised on consolidation? a. $15 000 *b. $10 500 c. $3 500 d. $90 000 General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. Feedback: (90 000 75 000) x 0.7 24. Breeze Limited acquired Zephyr Limited for a purchase consideration of $140000. At acquisition date the fair value of Zephyr Limited's furniture asset was $40000 and the carrying amount was $35000. If the company tax rate is 30%, which of the following is the appropriate adjustment to recognise the tax effect of the business combination revaluation of furniture at acquisition date? a. DR Deferred tax asset $3 500 b. CR Deferred tax asset $3 500 c. DR Deferred tax liability $3 500 *d. CR Deferred tax liability $3 500 General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 25. On 1 July Walter Ltd acquired 100% of the share capital of Kristoff Ltd. At that date, the carrying amount of Kristoff Ltd's machinery was $300 000. The fair value of the machinery on acquisition date was $330 000. The company tax rate was 30%. What is the amount of the business combination valuation reserve that will be recognised on consolidation? *a. $21 000

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Testbank to accompany Financial reporting 4e by Loftus et al.

b. $30 000 c. $33 000 d. $9 000 General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 26. At the date of acquisition there is no recognition of a deferred tax item in respect to goodwill because it is a residual amount and the recognition of a deferred tax item would: a. decrease the profit on consolidation. b. increase the profit on consolidation. *c. increase the carrying amount of goodwill. d. decrease the carrying amount of goodwill. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 27. On 1 July 2019 Debbie Ltd acquired a 100% interest in Stefan Ltd. At that date Stefan Ltd had goodwill of $6 000 recorded in its statement of financial position as a result of a previous business combination. The total goodwill arising on Debbie's acquisition of Stefan was $16 000. The goodwill to be recognised on consolidation as a result of Debbie's acquisition of Stefan is: a. nil. b. $6 000. c. $7 000. *d. $10 000. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 28. Prince Limited acquired 100% of the share capital of Charming Limited for a purchase consideration of $190 000. At acquisition date, the net fair value of Charming Limited's assets, liabilities and contingent liabilities was $175 000 including goodwill with a carrying amount of $5 000. The company tax rate is 30%. The unrecorded amount of goodwill that must be recognised on the consolidation worksheet is: a. $5 000. b. $10 000. *c. $15 000.

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

d. $20 000. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 29. The pre-acquisition entry is necessary to: *a. avoid overstating the equity and net assets of the group. b. avoid understating the equity and net assets of the group. c. avoid overstating the equity and net assets of the parent. d. record the 'shares in subsidiary' account in the parent's records. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 30. On 1 July 2021, Pineapple Limited acquired all the issued shares of Melon Limited for $250 000 when the equity of Melon Limited consisted of:

The pre-acquisition entry at 1 July 2021 is:

*b.

d. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. © John Wiley and Sons Australia, Ltd 2022

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Testbank to accompany Financial reporting 4e by Loftus et al.

31. Rose Ltd acquired on a cum div. basis all of shares in Petal Ltd for $140 000. At the date of acquisition, Trout Ltd had recorded a dividend payable of $40000 and a total shareholders' equity of $110 000. Assuming all the identifiable assets in Petal Ltd were recorded at fair value at acquisition date, the consolidation worksheet entries will have to recognise: a. a goodwill of $140 000. b. a goodwill of $40 000. c. a goodwill of $10 000. *d. a gain on bargain purchase of $10 000. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. Feedback: (Consideration $140 000 - Dividend $40 000) - Equity $110 000 = Gain on bargain purchase $10 000 32. At the date of acquisition, a subsidiary had recorded a dividend payable of $10000. Assuming that the shares were acquired on a cum div. basis, the consolidation adjustment needed at the date of acquisition to eliminate the dividend is:

*a. I. b. II. c. III. d. IV. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 33. The effect of the pre-acquisition entry is to eliminate the 'Shares in subsidiary' asset and the: a. net assets of the subsidiary at the acquisition date.

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

b. equity of the parent at the acquisition date. *c. equity of the subsidiary at the acquisition date. d. net assets of the parent at the acquisition date. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 34. Flagstone Limited acquired 100% of the shares in Pebbles Limited on a cum div. basis for $700 000. At acquisition date, the Pebbles Limited had a declared dividend of $80 000. The pre-acquisition entry must include the following line: a. Dr Shares in subsidiary $620 000 *b. Cr Shares in subsidiary $620 000 c. Cr Shares in subsidiary $80 000 d. Cr Shares in subsidiary $780 000 General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 35. Where the consideration transferred is less than the fair value of the identifiable net assets and contingent liabilities acquired, the difference must be recognised in the consolidation worksheet as: a. a transfer to the business combination valuation reserve. b. an increase in the 'Shares in subsidiary' asset. *c. a gain on bargain purchase. d. goodwill. General Feedback: Learning objective 28.4: prepare the consolidation worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries. 36. At the end of any period after acquisition, the business combination entries prepared for the assets and liabilities that were not recorded at fair value at acquisition date and that are sold, fully depreciated or settled during the current period include: a. no adjustments are required. b. adjustments to the asset or liability account, recognising also the tax effects. c. adjustments to the asset and liability account and to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects.

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Testbank to accompany Financial reporting 4e by Loftus et al.

*d. adjustments to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 37. On 1 January 2022, Cowboys Ltd acquired all the issued shares in Magpies Ltd. At that date, the inventory of Magpies Ltd had a fair value of $20 000 more than its carrying amount. By 30 June 2022, 75% of the inventory was sold to an entity outside of the group. The business combination valuation consolidation adjustment against the inventory account as at 30 June 2022 will be: a. DR $15 000 b. CR $10 500 c. CR $5 000 *d. DR $5 000 General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 38. On 1 January 2022, Cowboys Ltd acquired all the issued shares in Magpies Ltd. At that date, the inventory of Magpies Ltd had a fair value of $20 000 more than its carrying amount. By 30 June 2022, 75% of the inventory was sold to an entity outside of the group. The business combination valuation consolidation adjustment for inventories as at 30 June 2023 will include: a. a debit to inventories of $15 000. *b. a debit to cost of sales of $5 000. c. a debit to inventories of $15 000 and a debit to cost of sales of $5 000. d. a credit to inventories of $15 000 and a debit to cost of sales $5 000. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 39. On 1 January 2022, Cowboys Ltd acquired all the issued shares in Dragon Ltd. At that date, the plant of Dragon Ltd had a fair value of $10 000 more than its carrying amount and an estimated useful life of 5 years. Dragon Ltd depreciates the plant on a straight-line basis. The plant was sold during the year ended on 30 June 2023. The business combination valuation consolidation adjustment against plant in relation to the transaction as at 30 June 2023 will be: a. a debit of $10 000. b. a credit of $10 000.

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

c. a debit of $2 000. *d. there is no adjustment entry recorded against the plant account. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 40. On 1 January 2021, Brisbane Ltd acquired all the issued shares in Sydney Ltd. At that date, the plant of Sydney Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Sydney Ltd depreciates the plant on a straight-line basis. The plant was still in the business at 30 June 2022. The business combination valuation entries in relation to the plant as at 30 June 2022 will include: I. Adjustments to the current depreciation expense II. Adjustments to retained earnings (opening balance) III. Transfers from business combination valuation reserve to retained earnings IV. Adjustments to the plant account to recognise the fair value adjustment at acquisition date a. I and IV only. b. II and III only. *c. I, II and IV only. d. I, II, III and IV. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 41. On 1 January 2021, Brisbane Ltd acquired all the issued shares in Sydney Ltd. At that date, the plant of Sydney Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Sydney Ltd depreciates the plant on a straight-line basis. The plant was sold to external parties on 31 December 2022. The business combination valuation entries in relation to the plant for the year ended 30 June 2023 will include: I. Adjustments to the current depreciation expense II. Adjustments to retained earnings (opening balance) III. Transfers from business combination valuation reserve to retained earnings IV. Adjustments to the plant account to recognise the fair value adjustment at acquisition date a. III only. b. I, and III only. c. I, II, III and IV. *d. I, II and III only. General Feedback:

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Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 42. On 1 January 2022, Lemon Ltd acquired all the issued shares in Meringue Ltd. At that date, Meringue Ltd recognised in the notes to its financial statements a contingent liability with regards to a loan guarantee that had a fair value of $30 000. The contingent liability was settled at 31 December 2022 by Meringue Ltd making a payment of $20 000. Ignoring the tax effect, the business combination valuation entries in relation to the contingent liability for the year ended 30 June 2023 will include: I. Adjustments to expenses recognised on settlement II. Transfers from business combination valuation reserve to retained earnings III. Adjustments to the liability account to recognise the fair value adjustment at acquisition date a. I only. *b. I, II and III only. c. II, III and IV only. d. I, II, III and IV. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 43. One year after acquisition date, acquired goodwill was regarded as having become impaired by $10The appropriate consolidation adjustment in relation to the impairment will include the following line: a. DR Goodwill $10 000 b. CR Impairment loss $10 000 *c. CR Accumulated impairment losses $10 000 d. CR Business combination valuation reserve $10 000 General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 44. Which of the following statements regarding pre-acquisition entries prepared after acquisition date is incorrect? *a. They are adjusted for transfers between post-acquisition equity accounts. b. They include the pre-acquisition entry prepared at acquisition date adjusted for the effects of all the transfers between pre-acquisition equity accounts and changes in the investment account up to the beginning of the current period. c. They reverse the transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period.

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

d. They are adjusted for the changes in the investment account recognised by the parent in the subsidiary. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 45. In the periods after acquisition, the gain on bargain purchase will be recognised in the pre-acquisition entries as: a. no adjustment is necessary. b. a credit to gain for the current period. c. a debit to retained earnings (closing balance). *d. a decrease in the amount debited to retained earnings (opening balance). General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 46. Which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date? I.Depreciation on non-current assets. II.Transfers to post-acquisition retained earnings.III.Transfers from pre-acquisition retained earnings.IV.Bonus dividends paid from pre-acquisition equity.@ Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. *a. III and IV only. b. I, II, III and IV. c. I, III and IV only. d. II and III only. 47. Turtles Ltd acquired 100% of Dove Ltd on 1 July 2021. At acquisition date, Dove Ltd had the following equity items:

In the year following the acquisition, Dove Ltd paid a bonus share dividend of $30 000 out of preacquisition retained earnings. Which of the following consolidation adjustments is needed in the

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Testbank to accompany Financial reporting 4e by Loftus et al.

consolidation worksheet for 30 June 2022?

a. I. b. II. *c. III. d. IV. General Feedback: Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 48. At acquisition date, a wholly owned subsidiary had the following equity items:

In the year following the acquisition, the subsidiary transferred $5 from pre-acquisition retained earnings to a general reserve account. At the reporting date following the reserve transfer, which of the following consolidation adjustments is needed?

a. I. *b. II. c. III. d. IV. General Feedback:

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Chapter 28: Consolidation: wholly owned entities Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 28.5: prepare the consolidation worksheet entries in periods subsequent to the acquisition date. 49. Which of the following statements is correct? *a. Revaluations of assets such as goodwill and inventory are not permitted in the accounting records of the subsidiary. b. Inventories can be revalued to an amount greater than its cost in the records of the subsidiary. c. AASB 3 Business Combinations requires that any revaluations of a subsidiary's assets at acquisition date must be done in the consolidation worksheet. d. The revaluation of non-current assets in the subsidiary's records means that the subsidiary has adopted the cost model of accounting for those assets. General Feedback: Learning objective 28.6: prepare the consolidation worksheet entries where the subsidiary revalues its assets at acquisition date. 50. If a revaluation of the subsidiary's assets is performed on consolidation, the subsidiary's assets are carried into the consolidated statement of financial position at: a. current replacement cost. b. net present value. *c. fair value. d. historical cost. General Feedback: Learning objective 28.6: prepare the consolidation worksheet entries where the subsidiary revalues its assets at acquisition date. 51. Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary? I. Goodwill II. Inventories III. Land and buildings IV. Plant and equipment a. I, III and IV. b. II, III and IV. c. I and III. *d. I and II. General Feedback:

28.20

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 28.6: prepare the consolidation worksheet entries where the subsidiary revalues its assets at acquisition date. 52. Which of the following statements is incorrect? *a. All assets can be revalued in the subsidiary's accounts. b. The fair value adjustments may be made via the consolidation worksheet or in the actual records of the subsidiary. c. If the assets can be revalued in the subsidiary accounts, the increase in value will be recognised as part of the pre-acquisition equity in asset revaluation surplus. d. If the assets are revalued in the consolidation worksheet, the increase in value will be recognised as part of the pre-acquisition equity in the business combination valuation reserve. General Feedback: Learning objective 28.6: prepare the consolidation worksheet entries where the subsidiary revalues its assets at acquisition date. 53. A subsidiary decides to revalue their assets to their fair value at acquisition date in its own accounts. Which of the following statements is correct accounting treatment? a. Any adjustments need to be recognised in business combination valuation entries. *b. Any adjustments need to be recognised in asset revaluation surplus. c. Adjustments recognised in business combination valuation entries are not eliminated in preacquisition entry. d. Adjustment recognised in asset revaluation surplus are not eliminated in pre-acquisition entity. General Feedback: Learning objective 28.6: prepare the consolidation worksheet entries where the subsidiary revalues its assets at acquisition date.

28.21

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 29: Consolidation: intragroup transactions Multiple choice questions 1. Which of the following statements is incorrect? a. consolidated profit arises only in relation to transactions with entities external to the group. b. consolidated revenues are earned only from transactions with entities external to the group. *c. consolidated assets are recorded at the cost to the legal entity that owns them. d. consolidated liabilities are obligations to entities external to the group. General Feedback: Learning objective 29.1: explain the need for making adjustments for intragroup transactions. 2. The adjustments included in the consolidation worksheet are: I. pre-acquisition entries II. business combination valuation entries III. elimination of the effects of intragroup transactions IV. @ Learning objective 29.1: explain the need for making adjustments for intragroup transactions. *a. I, II and III b. I and II only c. I only d. II only 3. Why do the effects from the transactions between the entities within the group need to be eliminated from the consolidated financial statements? a. The consolidated financial statements present only the profits or losses made by the entities within the group. b. The effects from the intragroup transactions will be presented in the financial statements of the subsidiary company. c. The effects from the intragroup transactions will be presented in the financial statements of the parent company. *d. The consolidated financial statements should report only the effects of transactions between the group and external entities. General Feedback: Learning objective 29.1: explain the need for making adjustments for intragroup transactions. 4. AASB 10 Consolidated Financial Statements, requires that the effect of intragroup transactions be: *a. eliminated in full on consolidation. b. adjusted for in full in the books of both the parent and subsidiary.

29.2

Testbank to accompany Financial reporting 4e by Loftus et al.

c. eliminated on consolidation to the extent of the parent's interest in the subsidiary. d. adjusted for in the books of the parent and subsidiary to the extent of the parent's interest in the subsidiary. General Feedback: Learning objective 29.2: outline the adjustment process and the key questions to consider. 5. Which of the following statements is incorrect? a. the effects of intragroup transactions need to be eliminated in full. *b. the effects of intragroup transactions that need to be eliminated are those related to the current profit. c. the adjustments for the elimination of the effects of intragroup transactions may need to be repeated in subsequent periods. d. the effects of intragroup transactions are recognised in the individual statements of financial position and/or the individual statements of comprehensive income. General Feedback: Learning objective 29.2: outline the adjustment process and the key questions to consider. 6. Key questions to consider when determining the appropriate consolidation adjustment entries include the following except for: a. What is the tax effect of the adjustments made? b. What has been recorded by the legal entities? c. Is this a prior period or a current period transaction? *d. Does the transaction involve the parent entity selling assets to the subsidiary, or the subsidiary selling assets to the parent entity? General Feedback: Learning objective 29.2: outline the adjustment process and the key questions to consider. 7. The profit on an intragroup business transaction is 'realised' when: a. the parent sells to the subsidiary. b. the subsidiary sells to the parent. *c. there is involvement with an external party. d. only entities within the group are parties to the transaction. General Feedback: Learning objective 29.2: outline the adjustment process and the key questions to consider.

29.3

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

8. Which of the following statements is incorrect? a. Adjustments are required for both prior period and current period intragroup transactions to the extent that the effects of those transactions are still present in the individual accounts of the entities involved. *b. The profits or losses generated from intragroup transfers of assets are considered realised from the group's perspective until such movement when those assets are transferred to external entities. c. Adjustments are determined by comparing the amounts recognised in the individual accounts affected with the amounts that the group should recognise. d. When adjustments for intragroup transactions affect the carrying amount of assets or liabilities, further adjustments are made for the tax effect of those adjustments. General Feedback: Learning objective 29.2: outline the adjustment process and the key questions to consider. 9. Maxwell Ltd owns all the shares capital of Freeman Ltd. On 31 March 2024, Maxwell Ltd sold inventory to Freeman Ltd for $57,000. The inventory had originally cost Maxwell Ltd $92,000. All of the inventory was sold by Freeman Ltd to an external company. Which of the following is not required adjustment on 30 June 2024? a. Decrease the opening retained earnings b. Increase the income tax expenses. *c. Increase the deferred tax assets. d. Decrease the cost of sales. General Feedback: Learning objective 29.2: outline the adjustment process and the key questions to consider. 10. During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $30. All the inventories were still on hand at the end of the year. The consolidation adjustment entry would include the following line item: a. CR Inventories $30. b. CR Inventories $24. c. CR Inventories $18. *d. CR Inventories $6. General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories.

29.4

Testbank to accompany Financial reporting 4e by Loftus et al.

11. During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $14. At the end of the year all the inventories were still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item: *a. CR Cost of sales $14 b. CR Cost of sales $20 c. CR Cost of sales $6 d. CR Cost of sales $8 General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 12. The tax effect of eliminating the unrealised profit from an intragroup sale of inventories and adjusting the value of the inventories on hand is recognised as: a. an increase in income tax expense. b. an increase in deferred tax liability. c. a decrease in deferred tax liability. *d. an increase in deferred tax asset. General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 13. On 5 June 2023, a parent entity sold inventories to a subsidiary entity for $80. The inventories had previously cost the parent entity $72. All the inventories are still held by the subsidiary at reporting date, 30 June 2023. Ignoring tax effects, the adjustment entry in the consolidation worksheet at reporting date is: General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 14. During the current period, a subsidiary entity sold inventories to a parent entity for $40. The inventories had previously cost the subsidiary entity $36. By reporting date the parent entity had sold 75% of inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

29.5

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

*b.

d. General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 15. During the current period, Ambrose Limited sold inventories to its parent entity at a profit of $12 000. The inventories cost Ambrose Limited $36. At balance sheet date the parent had sold 50% of the inventories to an external party. The consolidation adjustment entry (excluding tax effects) will eliminate unrealised profit amounting to: a. $1. b. $18. *c. $6 d. $36. General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories.

29.6

Testbank to accompany Financial reporting 4e by Loftus et al.

16. During the year ended 30 June 2023, a subsidiary entity sold inventories to a parent entity for $50. The inventories had previously cost the subsidiary entity $45. By 30 June 2023 the parent entity had sold 75% of the inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 2024 is:

*c.

d. General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 17. During the year ended 30 June 2022, a subsidiary entity sold inventories to a parent entity for $50000. The inventories had previously cost the subsidiary entity $45000. By 30 June 2023 the parent entity had sold all the inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 2024 is:

29.7

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

c. *d. No entry is required General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 18. Sherrin Ltd purchased goods from its subsidiary for $24000. The goods cost the subsidiary $18 000. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct? a. DR Income tax expense $1 800 CR Deferred tax liability $1 800. b. DR Income tax expense $1 800 CR Deferred tax asset $1 800. *c. DR Deferred tax asset $1 800 CR Income tax expense $1 800. d. DR Deferred tax liability $1 800 CR Income tax expense $1 800. General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories. 19. A subsidiary sold inventories to its parent entity in the year ended 30 June 2023 at a profit of $8 000. At 30 June 2023 the parent had not sold the inventories. The company tax rate is 30%. The consolidation worksheet prepared at 30 June 2023 will contain the following adjustment entry for inventories: a. CR Inventories $2 400. b. DR Inventories $2 400. c. DR Inventories $8 *d. CR Inventories $8 General Feedback: Learning objective 29.3: prepare worksheet entries for intragroup transactions involving profits or losses in beginning and ending inventories.

29.8

Testbank to accompany Financial reporting 4e by Loftus et al.

20. When an entity sells a non-depreciable non-current asset during the current period at a profit to another entity within the same group the following adjustment is necessary on consolidation at the end of the period: a. DR Asset CR Cash *b. DR Gain on sale CR Asset c. DR Cash CR Asset d. DR Asset CR Gain on sale. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 21. A parent entity group sold a depreciable non-current asset to a subsidiary entity for $5 300. The asset originally cost $7 000 when acquired from an external party and at the date of the intragroup sale the accumulated depreciation was $2 200. The amount of the unrealised gain on the intragroup sale to be eliminated is: *a. $500. b. $2 200. c. $4 800. d. $5 300. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. Feedback: $5300 - ($7000 - 2200) 22. Purple Ltd sold an item of plant to its subsidiary, Rain Ltd, on 1 January 2023 for $50000. The asset had cost Purple Ltd $60000 and had an useful life of 6 years when acquired on 1 January 2021 from an external party. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 2023 will result in: a. an increase in current year profit. b. a decrease in current year profit. c. an increase in current year profit and non-current assets. *d. a decrease in current year profit and non-current assets.

29.9

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 23. Matthew Limited, a subsidiary entity, sold a non-current asset at a profit to its parent entity during the current period. The adjustment necessary on consolidation to reflect the tax effect of this transaction will result in an: a. increase in retained earnings. b. decrease in retained earnings. *c. increase in deferred tax assets. d. decrease in deferred tax liabilities. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 24. The realisation of the profit or loss on a depreciable asset transferred within the group: a. occurs only when the asset is sold to an external party. b. results in an inconsistent pattern with the allocation of depreciation of the asset. c. is assumed to occur only when an external entity becomes directly involved with the asset. *d. is assumed to occur when the future benefits embodied in the asset are consumed by the group. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 25. Kateri Ltd sold an item of plant to its subsidiary, Patrick Ltd, on 1 January 2023 for $50. The asset had cost A Ltd $60 and had a useful life of 6 years when acquired on 1 January 2021 from an external party. The adjustment necessary on consolidation to reflect the tax effect of the depreciation adjustment for the year ended 30 June 2023 will result in an increase in: a. deferred tax assets. *b. income tax expense. c. current tax liability. d. deferred tax liabilities. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. © John Wiley and Sons Australia, Ltd 2022

29.10

Testbank to accompany Financial reporting 4e by Loftus et al.

26. Kateri Ltd sold an item of plant to its subsidiary, Patrick Ltd, on 1 January 2023 for $50The asset had cost A Ltd $60and had a useful life of 6 years when acquired on 1 January 2021 from an external party. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 2024 will result in: a. a decrease in retained earnings and a decrease in current year profit. b. an increase in retained earnings and a decrease in current year profit. *c. a decrease in retained earnings and an increase in current year profit. d. an increase in retained earnings and an increase in current year profit. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 27. Which of the following statements is incorrect? a. Where the transferred assets are depreciable, adjustments are made to depreciation accounts (for the current period depreciation) and/or to the retained earnings account (for the previous periods' depreciation). *b. Adjustments for the gain/loss on intragroup sale of property, plant and equipment are made in all periods after the sale. c. As depreciation reflects the use of the asset by the group, the depreciation adjustments are realising a part of the gain/loss on the intragroup sale of property, plant and equipment. d. As the intragroup sale of property, plant and equipment impacts on the profit and the carrying amount of assets, adjustments for the tax effects are also required. General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 28. On 1 July 2022, Zoe Ltd sold equipment to its subsidiary, Nate Ltd, for $80 000. The equipment had a carrying amount at the time of sale of $70 000. The equipment was depreciated by Zoe Ltd at 10% p.a. on cost, while Nate Ltd applies a rate of 8%. The consolidation worksheet entry for the year ended 30 June 2023 would include the following adjustment in relation to depreciation: a. DR Depreciation expense $1 000 CR Accumulated depreciation $1 000 b. DR Accumulated depreciation $1 000 CR Depreciation expense $1 000 c. DR Depreciation expense $800 CR Accumulated depreciation $800

29.11

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. DR Accumulated depreciation $800 CR Depreciation expense $800 General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. Feedback: Depreciation recorded by Nate Ltd = $80 000 x 8% = $6400. Depreciation for the group = $70 000 x 8% = $5600. Depreciation is to be reduced by $800. 29. On 1 January 2023, Gemma Ltd sells inventories to its subsidiary, Tess Ltd, for $24 000. The inventories cost Gemma Ltd $20 000 earlier in the current year. Tess Ltd intends to use the item as plant with a useful life of 10 years. The estimated salvage value of the plant is zero and the straight-line method of depreciation will be applied. The tax rate is 30%. The worksheet entry for the year ended 30 June 2023 would include the following adjustment: a. DR Plant $4 *b. CR Plant $4 c. DR Inventories $4 d. CR Inventories $4 General Feedback: Learning objective 29.4: prepare worksheet entries for intragroup transactions involving profits or losses on the transfer of property, plant and equipment in both the current and previous periods. 30. Pink Ltd owns 100% of issued shares of Panther Ltd. When Pink Ltd provides management consultations to Panther Ltd for $10,000, which of the following accounts is a correct adjustment? a. DR Cash: CR Management Fee Revenue b. DR Management Fee Revenue: CR Cash *c. DR Management Fee Revenue: CR Management Fee Expense d. DR Management Fee Expense: CR Management Fee Revenue General Feedback: Learning objective 29.5: prepare worksheet entries for intragroup services. 31. During the year ended 30 June 2023, Jasmine Ltd rents a warehouse from its subsidiary, Rose Ltd, for $20. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2023 is:

29.12

Testbank to accompany Financial reporting 4e by Loftus et al.

*c.

d. General Feedback: Learning objective 29.5: prepare worksheet entries for intragroup services. 32. On 1 July 2021, Xavier Ltd rents a warehouse for one year from its subsidiary, Gabrielle Ltd, for $60000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2023 is:

c. *d. No entry is required at 30 June 2023. General Feedback: Learning objective 29.5: prepare worksheet entries for intragroup services. 33. With regards to services provided within the group: a. there will be an increase in deferred tax assets. b. there will be an increase in income tax expense. *c. the consolidation adjustments do not affect the group's profit. d. the group's profit equals service revenue less service expense. General Feedback: © John Wiley and Sons Australia, Ltd 2022

29.13

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 29.5: prepare worksheet entries for intragroup services. 34. Which of the following statements is incorrect? a. Profits/losses on intragroup services are immediately realised to the group. *b. It is necessary to have a tax-effect adjustment when adjusting for intragroup services. c. Adjustments for previous periods' intragroup services affect only statement of financial position accounts, but only if the fees have not been paid. d. Adjustments for current period intragroup services affect statement of profit or loss and other comprehensive income accounts and statement of financial position accounts if the fees have not been paid and only statement of profit or loss and other comprehensive income accounts otherwise. General Feedback: Learning objective 29.5: prepare worksheet entries for intragroup services. 35. When eliminating an intragroup service, which of the following entries would appear in the consolidation worksheet entry? a. CR Income tax expense. b. CR Deferred tax liability. c. DR Services expense. *d. DR Services revenue. General Feedback: Learning objective 29.5: prepare worksheet entries for intragroup services. 36. Changes in accounting standards since 2008 require all dividends: *a. from a subsidiary to be accounted for by the parent as revenue. b. from post-acquisition equity to be accounted for by the parent as revenue. c. from pre-acquisition equity to be accounted for by the parent as a return on investment in the subsidiary. d. from a subsidiary to be accounted for by the parent as a return on investment in the subsidiary. General Feedback: Learning objective 29.6: prepare worksheet entries for intragroup dividends. 37. When a subsidiary declares a final dividend payable to a parent who has a 100% interest in the subsidiary, the parent recognises a dividend receivable and the subsidiary recognises a dividend payable. In addition to the elimination of these two items on consolidation, the following items must also be eliminated:

29.14

Testbank to accompany Financial reporting 4e by Loftus et al.

a. Dividend revenue and Cash. b. Dividend declared and Cash. *c. Dividend declared and Dividend revenue. d. Dividend declared and Retained earnings. General Feedback: Learning objective 29.6: prepare worksheet entries for intragroup dividends. 38. A dividend paid out of profits earned after the acquisition date is known as a: a. final dividend. b. pre-acquisition dividend. *c. post-acquisition dividend. d. temporary dividend. General Feedback: Learning objective 29.6: prepare worksheet entries for intragroup dividends. 39. During the current period, Rosina Limited paid an interim dividend of $60 000 to its parent entity, Anastasia Limited. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction at the end of the period? a. DR Deferred Tax Asset $18 000. b. DR Income Tax Expense $18 000. c. CR Deferred Tax Liability $18 000. *d. There is no tax effect entry required. General Feedback: Learning objective 29.6: prepare worksheet entries for intragroup dividends. 40. Plum Ltd owns all the issued shares of White Ltd. On 15 June 2024, Plum Ltd declared a $58,000 dividend. When preparing the consolidated financial statements, which of the following is correct? *a. No adjustment is required. b. DR Dividend payable $58,000 CR Dividend declared $58,000 c. DR Dividend revenue $58,000 CR Dividend expense $58,000 d. DR Dividend revenue $40,600 DR Income tax expense 17,400 CR Dividend declared $58,000

29.15

Chapter 29: Consolidation: intragroup transactions Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 29.6: prepare worksheet entries for intragroup dividends 41. Paul Limited provided an advance of $150 to its subsidiary Caitlin Limited. On consolidation, the following adjustment is needed in relation to this intragroup advance: a. no adjustment is needed. b. DR Advances to Caitlin Ltd $150 CR Advances from Paul Ltd $150 *c. DR Advances from Paul Ltd $150 CR Advances to Caitlin Ltd $150 d. DR Advances from Paul Ltd $150 CR Cash $150 General Feedback: Learning objective 29.7: prepare worksheet entries for intragroup borrowings. 42. Rachel Ltd provided an advance of $100 to its subsidiary Marion Ltd. Interest of $10 was charged during the year ended 30 June 2023. On consolidation, the following adjustment is needed at 30 June 2023 in relation to the interest charged: a. no adjustment needed. b. DR Interest expense $10 CR Interest revenue $10 c. DR Retained earnings $10 CR Cash $10 *d. DR Interest revenue $10 CR Interest expense $10 General Feedback: Learning objective 29.7: prepare worksheet entries for intragroup borrowings. 43. Leopard Ltd owns 100% of issued shares of Puma Ltd. Leopard Ltd issued 3,000 debentures at the nominal value of $100 with an interest rate of 7% p.a. on 1 January 2024. The interest is payable annually on 30 June each year. Debentures are to be redeemed after 5 years. Puma Ltd took 454% of the debenture issued. Which of following are correct adjustment for this event? *a. DR 7% Debentures 135,000 CR Debentures in Leopard Ltd 135,000 DR Interest revenue 4,725 CR Interest expense 4,725 b. DR 7% Debentures 135,000 CR Debentures in Leopard Ltd 135,000

29.16

Testbank to accompany Financial reporting 4e by Loftus et al.

DR Interest revenue 9,450 CR Interest expense 9,450 c. DR 7% Debentures 135,000 CR Debentures Revenue 135,000 DR Interest expense 4,725 CR Deferred tax liability 4,725 d. DR 7% Debentures 135,000 CR Debentures revenue 135,000 DR Interest revenue 9,450 CR Interest expense 9,450 General Feedback: Learning objective 29.7: prepare worksheet entries for intragroup borrowings. 44. Margaret Company made an advance of $45000 to its subsidiary, Jack Limited. Margaret Company charges interest of $15 000 on this advance. The consolidation adjustment to eliminate the advance is: a. DR Interest revenue $60 CR Interest expense $60 *b. DR Advance from Margaret Co. $45 CR Advance to Jack Ltd $45 c. DR Interest expense $60 CR Interest revenue $60 d. DR Advance to Jack Ltd $45 CR Advance from Margaret Co. $45 General Feedback: Learning objective 29.7: prepare worksheet entries for intragroup borrowings. 45. The consolidation adjustments in relation to intragroup borrowings: *a. do not require tax-effect entry. b. increase the group's net assets. c. increase the group's interest revenue. d. decrease the group's income tax expense. General Feedback: Learning objective 29.7: prepare worksheet entries for intragroup borrowings.

29.17

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 30: Consolidation: non-controlling interest Multiple choice questions 1. Which of the following is not a reason for an entity to prefer to have less than 100% ownership interest in a subsidiary? a. To comply with regulatory requirements. *b. To receive the whole gain on acquisition. c. To decrease the cash necessary to acquire the control over the subsidiaries. d. To incentivise the subsidiary's executives by allowing them to hold a non-controlling interest. General Feedback: Learning objective 30.1: discuss the nature of the non-controlling interest (NCI). 2. Ownership interests in a subsidiary entity that do not belong to the parent entity are known as: a. private interests. b. unowned interests. c. proprietary interests. *d. non-controlling interests. General Feedback: Learning objective 30.1: discuss the nature of the non-controlling interest (NCI). 3. A non-controlling interest contributes to a consolidated group? a. assets b. profit *c. equity d. liabilities General Feedback: Learning objective 30.1: discuss the nature of the non-controlling interest (NCI). 4. AASB 10 Consolidated Financial Statements classifies non-controlling interest as: a. a liability of the group. *b. part of the equity of the group. c. a liability of the parent entity. d. a liability. General Feedback:

30.2

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 30.1: discuss the nature of the non-controlling interest (NCI). 5. According to AASB 10 Consolidated Financial Statements, the term 'non-controlling interest' means: *a. equity in a subsidiary not attributable, directly or indirectly, to a parent. b. the total equity of the combined group. c. the equity in the parent entity other than the portion owned by the subsidiary entity. d. the equity in the economic entity other than that which can be attributed to the subsidiary entity. General Feedback: Learning objective 30.1: discuss the nature of the non-controlling interest (NCI). 6. Non-controlling interest is entitled to a part of the equity of the: a. parent entity. b. subsidiary entity. c. parent entity as reflected in the consolidated equity. *d. subsidiary entity as reflected in the consolidated equity. General Feedback: Learning objective 30.1: discuss the nature of the non-controlling interest (NCI). 7. Disclosure of the non-controlling interest's share of consolidated equity is required in which of the following financial statements? *a. all of these financial statements. b. consolidated statement of changes in equity. c. consolidated statement of financial position. d. consolidated statement of comprehensive income. General Feedback: Learning objective 30.2: Explain the principles of measurement and disclosure of the NCI. 8. When presenting a consolidated statement of financial position the non-controlling interest is: a. presented as a separate component of total assets and total liabilities. b. presented separately within the non-current liability section. *c. presented separately within the equity section. d. shown as a separate portion of net assets. General Feedback:

30.3

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 30.2: explain the principles of measurement and disclosure of the NCI. 9. The following information is required to be disclosed for the non-controlling interest (NCI) except for: a. the NCI share of consolidated equity. *b. the NCI share of consolidated profit before tax. c. the NCI share of consolidated profit after tax. d. the NCI share of consolidated comprehensive income. General Feedback: Learning objective 30.2: explain the principles of measurement and disclosure of the NCI. 10. Which of following is incorrect in relation to the NCI? a. NCI is a contributor of equity to the group. b. Intragroup transaction affects the calculation of NCI. *c. As a part of the equity contributor, NCIs are entitled to a share of the consolidated equity of group. d. As a part of the equity in the subsidiary, NCIs are entitled to a share of the equity of the subsidiary. General Feedback: Learning objective 30.2: explain the principles of measurement and disclosure of the NCI. 11. Which of the following statements is incorrect with regards to a consolidation worksheet in the presence of the non-controlling interest? a. there is no NCI share extracted from the assets and liabilities section of the worksheet. b. one extra column is added that includes the parent share of the individual equity accounts. c. two extra columns are added to the worksheet to divide the consolidated equity into the NCI and parent share. *d. one extra column is added that includes the NCI share of the individual equity accounts. General Feedback: Learning objective 30.3: explain how the consolidation worksheet is changed by the presence of the NCI. 12. In Bell Group's consolidation worksheet, the opening balance of retained earnings under 'Group' column shows a balance of $70 000. If there is a debit entry of $16 000 in the NCI column, the opening balance of retained earnings under 'Parent' column would be: *a. $54 000.

30.4

Testbank to accompany Financial reporting 4e by Loftus et al.

b. $70 000. c. $86 000. d. $16 000. General Feedback: Learning objective 30.3: explain how the consolidation worksheet is changed by the presence of the NCI. 13. On a consolidation worksheet, the non-controlling interest columns are used to: a. adjust the amounts that have been recorded for intragroup sales. b. record the amounts of the non-controlling investment in the parent. c. adjust the amounts that have been recorded for intragroup services. *d. compile the amounts of non-controlling interest and parent share of particular line items. General Feedback: Learning objective 30.3: explain how the consolidation worksheet is changed by the presence of the NCI. 14. On a consolidation worksheet, the non-controlling interest is calculated by adjusting the following accounts. Which of following is not relevant to this adjustment? a. profits b. retained earnings *c. assets d. dividend declared General Feedback: Learning objective 30.3: explain how the consolidation worksheet is changed by the presence of the NCI. 15. Under the full goodwill method, the NCI is measured based on: a. the fair value of the shares that parent owns in the subsidiary. *b. the fair value of the shares that the NCI owns in the subsidiary. c. the proportionate share of the fair value of the acquiree's identifiable assets and liabilities. d. the proportionate share of the carrying amount of the acquiree's identifiable assets and liabilities. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill.

30.5

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

16. Under the full goodwill method: *a. acquired goodwill consists of both goodwill of the subsidiary and the premium paid by the parent to acquire control over the subsidiary. b. the NCI is measured at the NCI's proportionate share of the acquiree's identifiable assets and liabilities. c. the NCI does not get a share of any equity relating to goodwill. d. only goodwill acquired by parent entity will be recognised. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. 17. The following statements are reasons as to why entities do not use the full goodwill method. Which of these statements is incorrect? a. It is more costly to measure NCI at fair value. b. Users of financial statements do not see any value in the reported NCI. c. There is insufficient evidence to assess the marginal benefits of reporting the acquisition-date fair value of the NCI. *d. The full goodwill method results in less reliable NCI information due to difficulties in measuring NCI at fair value. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. 18. Under the full goodwill method, a control premium is recognised when: a. the parent paid less than the fair value for the shares they acquired. *b. the parent paid more than the fair value for the shares they acquired. c. the consideration transferred by the parent is more than the fair value of the identifiable net assets acquired. d. the consideration transferred by the parent is less than the fair value of the identifiable net assets acquired. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. 19. Patrick Limited paid $11 000 for 80% of the shares in Rachel Limited. At the date of acquisition Rachel Limited had equity as follows:

30.6

Testbank to accompany Financial reporting 4e by Loftus et al.

Share capital $9 Retained earnings $2 500 Other reserves $4 000 All of Rachel Limited's assets and liabilities were recorded at fair value. The fair value of identifiable net assets acquired by Patrick Limited amounted to: a. $8 800 *b. $10 000 c. $11 000 d. $12 500 General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. Feedback: (9000 + 2500 + 1000) x 80% 20. Marion Limited paid $180 for 60% of the shares in Lucia Limited. At the date of acquisition Lucia Limited had share capital of $160 and retained earnings of $90 and all of Lucia Limited's assets and liabilities were recorded at fair value, except for plant that had a fair value of $40 000 more than its carrying amount. The company tax rate was 30%. The fair value of identifiable net assets acquired by Marion Limited amounted to: *a. $166 800 b. $174 000 c. $178 000 d. $180 000 General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. Feedback: (160 000 + 90 000 + (40 000 x 0.7)) x 60% = $166 800 21. When preparing a set of consolidated financial statements, the pre-acquisition entry relates to: a. both the parent and the non-controlling interest in the subsidiary. b. only the investment by the non-controlling interest in the subsidiary. *c. only the investment by the parent in the subsidiary. d. the total investment by the parent in the subsidiary plus the after-tax effect of the investment by the non-controlling interest. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill.

30.7

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

22. Which of the following statements with regards to control premium is incorrect? a. it is recognised under the full goodwill method. b. it is recognised only in the pre-acquisition entry. c. it is not recognised under the partial goodwill method. *d. it is recognised in the business combination valuation entries. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. 23. Ryan Limited acquired 80% of the shares in Tully Limited for $165 000. At acquisition date, share capital in Tully was $120 000 and reserves amounted to $40 000. All assets and liabilities of Tully were recorded at fair value at acquisition date except machinery which was recorded at $20 000 below fair value. The fair value of the NCI at the date of Ryan's acquisition was $40 000 and the full goodwill method is adopted by the group. If the company tax rate was 30%, the total amount of goodwill recorded in relation to this business combination amounts to: a. $5 000 *b. $31 000 c. $26 000 d. $25 000 General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. Feedback: Net FV of Identifiable assets & liabilities = (120 000 + 40 000 + (20 000x0.7)) = 174 000. Consideration transferred + FV of NCI = 165 000 + 40 000 = 205 000. Total goodwill = 205 000 - 174 000 = 31 000. 25. Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $100 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Graham Limited in this business combination was: a. $5 600 b. $10 000 *c. $10 600 d. $26 000 General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. Feedback: Net FV of Identifiable assets & liabilities =

30.8

Testbank to accompany Financial reporting 4e by Loftus et al.

(240 000 + 124 000 + (60 000x0.7)) = 366 000. Consideration transferred + NCI = 340 000 + (366 000 x 10%) = 376 600. Total goodwill = 376 600 - 366 000 = 10 600. 26. Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $200 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The NCI share of equity at the date of acquisition was: *a. $16 600 b. $34 000 c. $32 400 d. $38 400 General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. Feedback: Net FV of Identifiable assets & liabilities = (240 000 + 124 000 + (60 000x0.7)) = 366 000. NCI share of equity = 366 000 x 10% 27. On 1 July 2023, Sunset Ltd acquired 75% of the issued shares of Rainbow Ltd for $280,000. At this date, the fair value of the non-controlling interest was $85,000 and the equity of Rainbow Ltd was: Share Capital $200,000 General Reserve 50,000 Retained Earnings 80,000 At acquisition date, all the identifiable assets and liabilities of Rainbow Ltd were recorded at amounts equal to fair value. Calculate the control premium of Sunset Ltd assuming it adopts the full goodwill method. *a. $25,000 b. $35,000 c. $10,000 d. $8,750 General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. Feedback: Net FV of Identifiable assets & liabilities = (200,000 + 50,000 + 80,000) = 330,000 Goodwill acquired = Consideration (280,000) Plus NCI share of equity (85,000) = 365,000. Goodwill = 35,000 (365,000 - 330,000) Fair value of Rainbow Ltd = 85,000/0.25 = 340,000 Goodwill of Rainbow Ltd = 340,000 - 330,000 = 10,000 Control premium of parent = 35,000 - 10,000 = 25,000

30.9

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

28. Which of the following is not an effect of choosing the partial goodwill method over the full goodwill method? a. There will be differences in the reported amounts at acquisition date in the consolidated statements. *b. It is more costly to measure the NCI under the partial goodwill method. c. Where the parent acquires some or all of NCI after obtaining control, there will be a higher impact on equity attributable to the parent shareholders. d. The impairment test on goodwill after acquisition will be more complex under the partial goodwill method. General Feedback: Learning objective 30.4: identify how the existence of an NCI affects the consolidation process, particularly in the measurement of goodwill. 29. A non-controlling interest in a subsidiary entity is entitled to a share of which of the following items?

*a. I. b. II. c. III. d. IV. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 30. On 1 July 2022, Brad Ltd acquired 75% of the issued shares of Max Ltd for $240,000. At this date, the equity of Max Ltd was: Share Capital $100,000 Retained Earnings 120,000 Other Reserves 60,000 At acquisition date, all the identifiable assets and liabilities of Max Ltd were recorded at amounts equal to fair value. Also, the fair value of the non-controlling interest on this date was $75,000 and Brad Ltd adopted the partial goodwill method. In the year 2022-23, Max Ltd recorded a profit of $35,000. The total share of the non-controlling interest in the equity of Max Ltd at 30 June 2023 is

30.10

Testbank to accompany Financial reporting 4e by Loftus et al.

a. $70,000 b. $75,000 *c. $78,750 d. $83,750 General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. Feedback: Using the 3-step process: NCI share at acquisition date ($280 000 x 25% = $70,000) plus NCI share of current period profits ($35,000 x 25% = 8,750) = $78,750. 31. James Limited is a subsidiary of Anastasia Limited. When Anastasia acquired its 75% interest in James, the retained earnings of James were $10. At the beginning of the current period James Limited's retained earnings were $40. James earned profit after tax of $20 during the current period. The total share of the non-controlling interest in the equity of James Limited at the end of the current period is: a. $7 500 b. $10 000 *c. $15 000 d. $17 500 General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. Feedback: Using the 3-step process: NCI share at acquisition date = $10 000 x 25% = $2500 plus NCI share from acquisition date to beginning of current year = ($40 000 - 10 000) x 25% = $7500 plus NCI share of current period profits = $20 000 x 25% = $5000. 32. A non-controlling interest in the net assets of a subsidiary consists of the amount of those noncontrolling interests at the date of the business combination: a. less 100% of any post-acquisition dividends paid. b. less the parent's share of any post-acquisition dividends paid or declared. c. less the non-controlling proportionate share of increases in the subsidiary's equity since the business combination. *d. plus the non-controlling proportionate share of the changes in the subsidiary's equity since the business combination. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 33. The step 1 NCI entry to reflect the NCI share of equity at acquisition date: a. changes every period as a result of changes in NCI.

30.11

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

*b. never changes, and is the same in all subsequent consolidation worksheets. c. changes every period as a result of changes in the subsidiary's pre-acquisition equity. d. changes every period as a result of changes in the subsidiary's post-acquisition equity. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 34. Changes in equity in the previous periods up to the beginning of the current period that must be identified for the step 2 NCI entry do not include: a. transfers to/from reserves. b. changes in share capital. *c. dividends paid/declared. d. changes in retained earnings, adjusted for the impact of BCVR entries on the opening balance of retained earnings. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 35. Changes in equity in the current period that must be identified for the step 3 NCI entry include: a. dividends paid/declared. b. transfers to/from reserves. c. profit/(loss) earned, adjusted for the impact of BCVR entries on the current profit. *d. all of these options. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 36. A non-controlling interest is entitled to a share of which of the following items? I. Equity of the group entity at acquisition date. II. Equity of the subsidiary at acquisition date. III. Current period profit or loss of the subsidiary entity. IV. Changes in equity of the subsidiary since acquisition date and the beginning of the current financial period. a. III only. b. I, II and III. c. I and II only. *d. II, III and IV only. General Feedback: Learning objective -30.5: explain how the NCI is calculated in a three-step process.

30.12

Testbank to accompany Financial reporting 4e by Loftus et al.

37. During the previous year, a partly-owned subsidiary made a transfer from retained earnings to a general reserve. In the current year, which of the following lines would appear in the NCI journal relating to the previous year's transfer? a. DR NCI. b. CR Retained earnings. *c. DR General reserve. d. CR Transfer to general reserve. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 38. During the current year, a partly-owned subsidiary has made a transfer from retained earnings to a general reserve. Which of the following lines would appear in the NCI journal relating to the current year's transfer? a. DR NCI. b. CR General reserve. c. DR Retained earnings. *d. CR Transfer to general reserve. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process. 39. For an intragroup transaction to require an adjustment to the calculation of the non-controlling interest share of equity it must have which of the following characteristics? I. The transaction must result in the subsidiary recording a profit or a loss. II. After the transaction, the other party (not the party holding the non-controlling interest) must have on hand an asset on which unrealised profit is accrued. III. The initial consolidation adjustment must affect both the statement of financial position and statement of comprehensive income. a. I and II only. b. II and III only. *c. I, II and III. d. None of the above. General Feedback: Learning objective 30.5: explain how the NCI is calculated in a three-step process.

30.13

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

40. Parsley Limited owns 90% of the share capital of Sage Limited. Sage Limited paid a dividend of $60during the financial period. The NCI adjustment entries in the consolidation worksheet for the dividend include: *a. DR NCI $6 b. DR Dividend revenue $6 000. c. DR Dividend paid $6 d. DR Dividend payable $6 000. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. 41. Angus Limited owns 80% of the share capital of Boris Limited. Boris Limited paid a dividend of $150 000 during the financial period. The adjustment entries in the consolidation worksheet for the dividend include: a. DR Dividend paid $150 000. *b. DR Dividend revenue $120 000. c. DR Dividend payable $120 000. d. DR Dividend receivable $150 000. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. 42. Kenny Ltd holds a 60% interest in Swan Ltd. Kenny Ltd sells inventory to Swan Ltd during the year for $40The inventories originally cost Kenny Ltd $32 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction is a debit to NCI of: *a. Nil. b. $1 120 c. $2 240 d. $2 800 General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: There is no NCI adjustment as the sale of inventories was from the parent to the subsidiary. 43. Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15The inventories originally cost $13 000 when purchased from an external party. At the end

30.14

Testbank to accompany Financial reporting 4e by Loftus et al.

of the year all inventories are still on hand. The tax rate is 30%. The NCI adjustment to this intragroup transaction is a debit to NCI of: a. Nil. *b. $280 c. $400 d. $600 General Feedback: Learning objective -30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: Reduction of current period after-tax profit = ($15000 - $13000) x (1-30%) = $1400. NCI share at 20% = $1400 x 20% = $280 44. Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15000. The inventories originally cost $13 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction is a debit to NCI of: *a. $140 b. $700 c. $1000 d. Nil. General Feedback: Learning objective 306: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: Reduction of current period's 'unrealised' after-tax profit = ($15000 - $13000) x 50% x (1-30%) = $700. NCI share at 20% = $700 x 20% = $140. 45. Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15The inventories originally cost $13 000 when purchased from an external party. At the end of the year all inventories are still on hand, but were sold by the end of the next period. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction at the end of the next period is a credit to Retained earnings (opening balance) of: a. Nil. b. $1400 c. $2000 *d. $280 General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI.

30.15

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

46. In respect to the intragroup services, any profit or loss is regarded as: a. unrealised. *b. immediately realised. c. insignificant and so not adjusted on consolidation. d. extraordinary and so ignored for consolidation reporting purposes. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. 47. Which of the following statements is correct? a. All intragroup transactions have an impact on the NCI share of equity. *b. Transactions that do not affect profit will not give rise to an adjustment to the NCI. c. When the parent entity sells inventories to its subsidiary, a consolidation adjustment needs to be recorded to reduce the NCI. d. The NCI is not entitled to share the group's profit. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. 48. In respect to the intragroup services provided by a partly-owned subsidiary to the parent, the NCI adjustment required is a debit to NCI of: *a. Nil. b. the service fees. c. the service fees multiplied by the NCI ownership interest. d. the service fees multiplied by the parent's ownership interest. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: There is no adjustment to the NCI as the profit is considered to be immediately realised. 49. Ryan Ltd holds a 75% interest in Tully Ltd. On 30 June 2021 Tully Ltd transferred a depreciable non-current asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI share of profit at 30 June 2021 is: a. an increase of $2 625

30.16

Testbank to accompany Financial reporting 4e by Loftus et al.

b. an increase of $3 750 *c. a decrease of $2 625 d. a decrease of $3 750 General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: Unrealised after-tax profit at 30 June 2021 (the date of sale) = $15 000 x 70% = $10 500. NCI share of unrealised profit = $10 500 x 25% = $2625. 50. Ryan Ltd holds a 75% interest in Tully Ltd. On 1 July 2023, Tully Ltd transferred a depreciable noncurrent asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI share of profit for the year ended 30 June 2024 is: a. an increase of $3 000 b. an increase of $2 100 c. a decrease of $3 000 *d. a decrease of $2 100 General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: Unrealised after-tax profit at 30 June 2021 (the date of sale) = $15 000 x 70% = $10 500. NCI share of unrealised profit = $10 500 x 25% = $2625. NCI share of realised profit (depreciation) = $2625/5years = $525. NCI share of the net unrealised profit = $2625 - $525 = $2100. 51. Ryan Ltd holds a 75% interest in Tully Ltd. On 1 July 2023, Tully Ltd transferred a depreciable noncurrent asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI for the year ended 30 June 2025 is: a. an increase of $1 050. *b. a decrease of $1 050. c. an increase of $1 500. d. a decrease of $1 500. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. Feedback: NCI share of depreciation adjustment = ($15 000 / 5) x 0.7 x 25% x 2years = $1050 52. The intragroup transactions considered for NCI are normally those involving:

30.17

Chapter 30: Consolidation: non-controlling interest Not for distribution in full. Instructors may assign selected questions in their LMS.

a. the NCI selling inventories items or non-current assets to the parent for a profit or loss. b. the parent selling inventories items or non-current assets to the subsidiary for a profit or loss. *c. the subsidiary selling inventories items or non-current assets to the parent for a profit or loss. d. all of these options are correct. General Feedback: Learning objective 30.6: identify how the existence of intragroup transactions affects the measurement of the NCI. 53. If a gain on bargain purchase arises on a business combination, the non-controlling interest: *a. receives no share of the gain. b. is allocated 100% of the gain. c. is entitled to a proportionate share of the gain based on its level of share ownership. d. receives a proportionate share of the gain after adjustments for tax effects have been made. General Feedback: Learning objective 30.7: explain how a gain on bargain purchase affects the measurement of the NCI. 54. North Limited acquired 80% of the shares in South Limited for $100 000. At acquisition date, share capital in South was $90 000 and reserves amounted to $50 000. All assets and liabilities of South were recorded at fair value at acquisition date. The partial goodwill method is adopted by the group. If the company tax rate was 30%, the NCI will recognise a gain on bargain purchase of: a. $12 b. $8 000 c. $2 400 *d. Nil. General Feedback: Learning objective 30.7: explain how a gain on bargain purchase affects the measurement of the NCI. Feedback: The NCI does not receive any share of the gain on bargain purchase. 55. In accordance with the AASB 12 Disclosure of Interests in Other Entities, which of the following information relating to the NCI is not required to be disclosed? a. The profit or loss allocated to NCI of the subsidiary during the reporting period. b. The proportion of ownership interests held by NCI. *c. The total number of shares owned by the NCI. d. The name of the subsidiary. General Feedback:

30.18

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 30. 8: identify the disclosures required in relation to the NCI. 56. Principles in relation to the disclosure of NCI are provided by diverse accounting standards. Which of following is not related to the disclosure of NCI? a. IFRS12/AASB 12 Disclosure of Interests in Other Entities b. IFRS 10/AASB 10 Consolidated Financial Statements *c. IAS24/AASB 124 Related Party Disclosured. IAS 1/AASB 101 Presentation of Financial Statements General Feedback: Learning objective 30. 8: identify the disclosures required in relation to the NCI.

30.19

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 31: Consolidation: other issues Multiple choice questions 1. Which of the following are other issues to consider in the preparation of the consolidated financial statements? I. when a parent acquires a subsidiary after that subsidiary has acquired its own subsidiary. II. when the parent changes its ownership interest in a subsidiary after the consolidation group has been formed. III. where the parent has control over two subsidiaries but only has an ownership interest in one of those subsidiaries. *a. I, II and III b. I and II only c. II and III only d. I and III only General Feedback: Learning objective 31.1: understand multiple subsidiary group structure and the consequences of changes in the ownership interest by the parent in a subsidiary after an acquisition. 2. Ahanu Ltd owns 80% of the issued shares of Bemidii Ltd. One voting right is attached to each share. Bemidii Ltd holds 75% interest in Cabal Ltd. Which of the following statement is incorrect? a. Ahanu Ltd directly controls Bemidii Ltd through its ownership interest in Bemidii Ltd. b. Bemidii Ltd directly controls Cabal Ltd through its ownership interest in Cabal Ltd. c. Ahanu Ltd indirectly controls Cabal Ltd through Bemidii Ltd. *d. As Ahanu Ltd is the ultimate parent of Bemidii Ltd and Cabal Ltd, Bemidii is not the parent of Cabal Ltd. General Feedback: Learning objective 31.1: understand multiple subsidiary group structures and the consequences of changes in the ownership interest by the parent in a subsidiary after an acquisition.

31.2

Testbank to accompany Financial reporting 4e by Loftus et al.

3. Consider the following economic entity structure:

The direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI) are which of the following?

a. I. b. II. *c. III. d. IV. General Feedback: Learning objective 31.2: explain the difference between direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI) in a multiple subsidiary group structure. 4. Katie Limited has a 90% ownership interest in Max Limited. Max Limited has a 60% ownership interest in Josie Limited. As a result of these ownership interests, there is an indirect NCI in Josie Limited of: *a. 6% b. 10% c. 40%

31.3

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

d. 54% General Feedback: Learning objective 31.2: explain the difference between direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI). 5. Consider the following economic entity structure.

The direct non-controlling interests (DNCI) and indirect non-controlling interests (INCI) are which of the following?

a. I. b. II. c. III. *d. IV. General Feedback: Learning objective 31.2: explain the difference between direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI) in a multiple subsidiary group structure. Feedback: DNCI in B Ltd = 100% - (10% + 60%) = 30%; INCI in B Ltd = 60% x (1-80%) = 12% 6. Consider the following economic entity structure.

The indirect NCI in B Ltd is the same group of shareholders as the:

31.4

Testbank to accompany Financial reporting 4e by Loftus et al.

a. shareholders in P Ltd. b. direct NCI in B Ltd. c. indirect NCI in A Ltd. *d. direct NCI in A Ltd. General Feedback: Learning objective 31.2: explain the difference between direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI) in a multiple subsidiary group structure. 7. Anita Limited has a direct ownership interest of 80% in Mark Limited. Mark Limited has a direct ownership interest of 80% in Bribie Limited. The indirect non-controlling interest in Bribie Limited is: *a. 16%. b. 20%. c. 40%. d. 64%. General Feedback: Learning objective 31.2: explain the difference between direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI) in a multiple subsidiary group structure. 8. Kate Limited has an 80% ownership interest in Harry Limited. Harry Limited has a 60% ownership interest in William Limited. As a result of these ownership interests, there is a direct ownership interest in William Limited amounting to: a. 12%. b. 20%. *c. 40%. d. 80%. General Feedback: Learning objective 31.2: explain the difference between direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI) in a multiple subsidiary group structure. 9. An ownership structure in which Opal Limited acquires shares in Pearl Limited before Pearl Limited acquires shares in Quartz Limited is known as: *a. a sequential acquisition. b. a consequential acquisition. c. an aggregate acquisition. d. a multiple acquisition. General Feedback:

31.5

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 10. In a group that has a multiple subsidiary structure, the indirect non-controlling interest is entitled to: a. no share of post-acquisition equity. b. a proportionate share of pre-acquisition equity only. *c. a proportionate share of post-acquisition equity only. d. no share of either pre-acquisition or post-acquisition equity. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 11. In a group that has a multiple subsidiary structure, the direct non-controlling interest is entitled to: a. no share of post-acquisition equity. b. a proportionate share of pre-acquisition equity only. c. a proportionate share of post-acquisition equity only. *d. a proportionate share of both pre-acquisition and post-acquisition equity. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 12. In a situation where a parent acquires shares in a subsidiary, and the subsidiary later acquires a controlling interest in another entity, the ownership structure is: a. ordered. b. random. *c. sequential. d. non-sequential. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 13. The pre-acquisition entry for the Riley group in order to consolidate a 75% interest in a subsidiary contained the following debits: Retained earnings $16 000, share capital $80 000, general reserve $30 000, BCVR $12 000. The direct non-controlling interest's share of the subsidiary's equity at the date of acquisition is:

31.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. $184 000 *b. $46 000 c. $138 000 d. $34 500 General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: Total subsidiary equity = (16000 + 80000 + 30000 + 12000) / 75% = 184000. DNCI = 184000 x 25% = 46000 14. When calculating the direct non-controlling interest share of equity, consolidation adjustments are needed to: a. eliminate intragroup advances. b. recognise profits made on intragroup services. c. partially eliminate profits on intragroup services. *d. remove unrealised profits or losses from intragroup transactions. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 15. In order to consolidate a 60% interest in a subsidiary, the Morgan Group prepared the following preacquisition entry: DR Retained earnings $14 000 DR Share capital $25 000 DR General reserve $6 000 CR Investment in subsidiary $45 000 The interest in equity attributable to the direct non-controlling interest is: *a. $30 000. b. $15 000. c. $25 000. d. $20 000. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: $45 000 / 60% x 40% 16. Dion Ltd acquired a 60% ownership interest in Sean Ltd on 30 June 2023. On the same day, Sean Ltd acquired a 70% ownership interest in Jayden Ltd. The following inter-entity transactions have taken place between the entities in the group during the years ended 30 June 2024 and 30 June 2025.

31.7

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

i. On 1 July 2023 Sean sold an item of plant to Jayden for a profit of $40 000. The remaining useful life of the plant at the date of transfer was 4 years. ii. On 1 September 2023, Jayden paid a dividend of $50 000 from profits earned since 30 June 2023. iii. Dion lent $60 000 to Sean on 1 January 2024. Interest charged on the loan for the year ended 30 June 2024 was $4000 and for the year ended 30 June 2025 was $8000. iv. On 31 May 2024 Dion sold inventories to Jayden for $30 000. Profit earned on the sale was $4000. Jayden sold the inventories to external parties on 1 August 2024. Details of profits earned by entities within the group for the years ended 30 June 2024 and 30 June 2025 are:

The tax rate is 30%. For the sale of plant on 1 July 2023, what is the net NCI adjustment for the year ending 30 June 2024? a. $7 000 *b. $8 400 c. $10 000 d. $11 200 General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: After-tax profit on sale = $40000 x 70% = $28000. After-tax Depreciation adjustment for the year ending 30 June 2022 = $40000/4 x 70% = $7000. Net after-tax adjustment = $28000-$7000 = $21000. NCI share = $21000 x 40% = $8400 17. Dion Ltd acquired a 60% ownership interest in Sean Ltd on 30 June 2023. On the same day, Sean Ltd acquired a 70% ownership interest in Jayden Ltd. The following inter-entity transactions have taken place between the entities in the group during the years ended 30 June 2024 and 30 June 2025. i. On 1 July 2023 Sean sold an item of plant to Jayden for a profit of $40 000. The remaining useful life of the plant at the date of transfer was 4 years. ii. On 1 September 2023, Jayden paid a dividend of $50 000 from profits earned since 30 June 2023. iii. Dion lent $60 000 to Sean on 1 January 2024. Interest charged on the loan for the year ended 30 June 2024 was $4000 and for the year ended 30 June 2025 was $8000. iv. On 31 May 2024 Dion sold inventories to Jayden for $30 000. Profit earned on the sale was $4000. Jayden sold the inventories to external parties on 1 August 2024. Details of profits earned by entities within the group for the years ended 30 June 2024 and 30 June 2025 are:

31.8

Testbank to accompany Financial reporting 4e by Loftus et al.

The tax rate is 30%. The NCI share of profit in Jayden for the year ended 30 June 2025 is: a. $23 200. b. $21 000. *c. $40 600. d. $28 000. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: DNCI = 30%. INCI = 70% x 40% = 28%. DNCI + INCI = 58%. NCI share of profit in Jayden = $70 000 x 58%. 18. Dion Ltd acquired a 60% ownership interest in Sean Ltd on 30 June 2023. On the same day, Sean Ltd acquired a 70% ownership interest in Jayden Ltd. The following inter-entity transactions have taken place between the entities in the group during the years ended 30 June 2024 and 30 June 2025. i. On 1 July 2023 Sean sold an item of plant to Jayden for a profit of $40 000. The remaining useful life of the plant at the date of transfer was 4 years. ii. On 1 September 2023, Jayden paid a dividend of $50 000 from profits earned since 30 June 2023. iii. Dion lent $60 000 to Sean on 1 January 2024. Interest charged on the loan for the year ended 30 June 2024 was $4000 and for the year ended 30 June 2025 was $8000. iv. On 31 May 2024 Dion sold inventories to Jayden for $30 000. Profit earned on the sale was $4000. Jayden sold the inventories to external parties on 1 August 2025. Details of profits earned by entities within the group for the years ended 30 June 2024 and 30 June 2025 are:

The tax rate is 30%. The effect of the interest paid by Sean to Jayden on the NCI of Sean for the year ended 30 June 2025 is: a. an increase in NCI of $2 400 b. an increase in NCI of $3 200 c. an increase in NCI of $4 640 *d. nil. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 19. When calculating the direct non-controlling interest share of equity, consolidation adjustments are needed to:

31.9

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

a. eliminate any realised profits or losses from inventory transfers. b. partially eliminate any unrealised profits from inventory transfers. c. recognise any unrealised profits or losses from intragroup service transfers. *d. fully eliminate any unrealised profits or losses from intragroup transactions. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 20. An indirect non-controlling interest arises: a. when a partly owned subsidiary owns shares in the parent entity. b. when a wholly owned subsidiary owns shares in the parent entity. *c. only when a partly owned subsidiary holds shares in another subsidiary. d. only when a wholly owned subsidiary owns shares in another subsidiary. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 21. Koala Limited acquired a 75% ownership interest in Kookaburra Limited on 30 June 2023. On the same day, Kookaburra Limited acquired a 60% ownership interest in Kangaroo Limited. The following inter-entity transactions have taken place between the entities in the group during the years ended 30 June 2024 and 30 June 2025: · On 1 July 2023 Kangaroo sold an item of plant to Koala for a profit of $40 000. The remaining useful life of the plant at the date of transfer was 2 years. · On 1 September 2023, Kangaroo paid a dividend of $80 000 from profits earned prior to 30 June 2023. · Koala lent $200 000 to Kangaroo on 1 January 2024. Interest charged on the loan for the year ended 30 June 2024 was $10 000 and for the year ended 30 June 2025 was $20 000. · On 31 May 2025 Kookaburra sold inventories to Kangaroo for $10 000. Profit earned on the sale was $2 000. Kangaroo sold the inventories to external parties on 1 August 2025. Details of profits earned by entities within the group for the years ended 30 June 2024 and 30 June 2025 are:

The tax rate is 30%. For the year ended 30 June 2024, the dividend paid by Kangaroo effects the NCI of Kangaroo by: a. nil.

31.10

Testbank to accompany Financial reporting 4e by Loftus et al.

b. $12 000 c. $20 000 *d. $32 000 General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: DNCI of Kangaroo = 40%. INCI of Kangaroo = 15% and is adjusted for with the DNCI of Kookaburra. Therefore, effect of dividend on NCI of Kangaroo = $80 000 x 40%. 22. Koala Limited acquired a 75% ownership interest in Kookaburra Limited on 30 June 2023. On the same day, Kookaburra Limited acquired a 60% ownership interest in Kangaroo Limited. The following inter-entity transactions have taken place between the entities in the group during the years ended 30 June 2024 and 30 June 2025: · On 1 July 2023 Kangaroo sold an item of plant to Koala for a profit of $40 000. The remaining useful life of the plant at the date of transfer was 2 years. · On 1 September 2023, Kangaroo paid a dividend of $80 000 from profits earned prior to 30 June 2023. · Koala lent $200 000 to Kangaroo on 1 January 2024. Interest charged on the loan for the year ended 30 June 2024 was $10 000 and for the year ended 30 June 2025 was $20 000. · On 31 May 2025 Kookaburra sold inventories to Kangaroo for $10 000. Profit earned on the sale was $2 000. Kangaroo sold the inventories to external parties on 1 August 2025. Details of profits earned by entities within the group for the years ended 30 June 2024 and 30 June 2025 are:

The tax rate is 30%. For the year ended 30 June 2025, the effect of the inter-entity sale of inventories on the NCI of Kangaroo Limited is: *a. Nil. b. $350 c. $210 d. $560 General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: Profit on sale of inventories was earned by Kookaburra, not Kangaroo. 23. Merrivale Limited has an ownership interest of 80% in a subsidiary Bairnsdale Limited. Bairnsdale owns 60% of Clairmont Limited. Since acquisition date the retained earnings of Clairmont Limited have

31.11

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

increased from $100 000 to $250 000. The direct non-controlling interest in the retained earnings of Clairmont is: a. $0. b. $12 000. c. $60 000. *d. $100 000. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: $250 000 x (1-60%) 24. Phillip Limited has an ownership interest of 75% in a subsidiary Jacob Limited. Jacob Limited owns 80% of Baxter Limited. At acquisition date the retained earnings of Baxter Limited were $300 000. At consolidation date, the retained earnings of Baxter Limited were $840 000. The indirect non-controlling interest in the retained earnings of Baxter Limited is: a. $0 *b. $108 000 c. $168 000 d. $324 000 General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: Increase in RE = $540 000. INCI = $540 000 x 80% x 25% 25. Robinson Group had the following debits in the pre-acquisition entry used to consolidate an 80% direct ownership interest in a subsidiary: Retained earnings $240 000, Share capital $360 000, General Reserve $40 000, BCVR $28 000. The amount attributable to the direct non-controlling interest is: a. $72 000 b. $133 600 c. $150 000 *d. $167 000 General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. Feedback: (240 000 + 360 000 + 40 000 + 28 000) / 80% x 20% 26. When preparing consolidation adjustment entries to affect a consolidation of a multiple subsidiary structure, intragroup transactions: a. are not eliminated.

31.12

Testbank to accompany Financial reporting 4e by Loftus et al.

*b. are eliminated in full. c. are partially eliminated to the extent of the ownership interest of the parent entity to each transaction. d. are ignored as it is impractical to attempt to determine the size of the ownership interest relating to each transaction. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 27. In a multiple subsidiary structure, the direct non-controlling interest is entitled to a proportionate share of: a. pre-acquisition equity only. b. post-acquisition amounts of equity only. *c. pre- and post-acquisition amounts of equity. d. post-acquisition balance of retained earnings only. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 28. In a multiple subsidiary structure, the indirect non-controlling interest is entitled to a proportionate share of: a. pre-acquisition equity. *b. post-acquisition equity only. c. both pre- and post-acquisition equity. d. neither pre- nor post-acquisition equity. General Feedback: Learning objective 31.3: prepare the consolidated financial statements for a multiple subsidiary structure. 29. Erin Limited acquired shares in James Limited. At the time of this acquisition James Limited already held shares in Cameron Limited. This form of acquisition of an indirect ownership interest, by Erin Limited in Cameron Limited, is known as a/an: a. unorthodox acquisition. b. indirect acquisition. *c. non-sequential acquisition.

31.13

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

d. inconsequential acquisition. Answer: c Feedback: d) Learning objective 31.4: explain the effects on the consolidation process where a multiple subsidiary group structure is created through non-sequential acquisitions.

30. A Ltd acquired its 60% interest in B Ltd on 1 July 2024. In following year, P Ltd acquired 75% of the issued shares of A Ltd on 1 July 2025. At this acquisition date, the financial positions of A Ltd and B Ltd are as follows:

The carrying amount of land of B Ltd was $200,000 on 1 July 2024 while the fair value of land was $ 250,000. The fair value of land has further increased to $300,000 on 1 July 2025. Which of the following statement is incorrect in relation to the preparation of consolidated financial statements for 30 June 2026?

a. Initial revaluation of land at 1 July 2024 needs to be adjusted as part of pre-acquisition entries. *b. The revaluation of the investment account 'Shares in B Ltd' needs to be adjusted as part of the pre-acquisition entries. c. 40% direct non-controlling interest in relation to the revaluation of land needs to be eliminated in business combination revaluation reserve account. d. Current year's revaluation of land at 1 July 2025 needs to be adjusted as part of pre-acquisition entries. General Feedback: Learning objective 31.4: explain the effects on the consolidation process where a multiple subsidiary group structure is created through non-sequential acquisitions. 31. A Ltd acquired its 80% interest in B Ltd on 1 July 2024. In following year, P Ltd acquired 60% of the issued shares of A Ltd on 1 July 2025. At this acquisition date, the financial positions of A Ltd and B Ltd are as follows:

31.14

Testbank to accompany Financial reporting 4e by Loftus et al.

a. Carrying amount of investment account "Shares in B Ltd' needs to be eliminated by crediting $300,000 b. 20% of 35,000 in BCVR in relation to land revaluation needs to be credited to non-controlling interest account. c. Upward revaluation of land needs to be eliminated after tax consideration. *d. Upward revaluation of investment account "Shares in B Ltd" needs to be eliminated after tax consideration. General Feedback: Learning objective 31.4: explain the effects on the consolidation process where a multiple subsidiary group structure is created through non-sequential acquisitions. 32. Which of the following can result in a loss of control by a parent over a subsidiary? I. The parent sells some of the shares in the subsidiary. II. There is a change in the dispersion in the holding of shares by entities comprising the NCI. III. There may be a change in a contractual arrangement. *a. I, II and III b. I and II only c. I and III only d. II only General Feedback: Learning objective 31.5: explain how to account for changes in ownership interests by a parent in a single subsidiary group structure. 33. Where a change in ownership interest results in the loss of control of a subsidiary:

31.15

Chapter 31: Consolidation: other issues Not for distribution in full. Instructors may assign selected questions in their LMS.

a. the gain or loss will be recorded in other comprehensive income. b. the gain or loss in the parent's records will equal the consolidated gain or loss. *c. the remaining investment will be recorded at fair value in accordance with AASB 9 Financial Instruments. d. the remaining investment will be accounted for in accordance with AASB 127 Separate Financial Statements. General Feedback: Learning objective 31.5: explain how to account for changes in ownership interests by a parent in a single subsidiary group structure.

31.16

Chapter 32: Associates and joint ventures Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 32: Associates and joint ventures Multiple choice questions 1. Which of the following statements is correct? *a. Joint arrangements classified as joint ventures are accounted for under AASB 128/IAS 28. b. All joint arrangements are accounted for under AASB 128/IAS 28. c. Joint arrangements classified as joint ventures are accounted for under AASB 11. d. Joint arrangements classified as joint operations are accounted for under AASB 128/IAS 28. General Feedback: Learning objective 32.1: explain the nature of investments in associates and joint ventures. 2. For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds: *a. 20% or more of the voting power of the investee. b. 50% or more of the voting power of the investee. c. between 1% and 5% of the voting power of the investee. d. between 5% and 10% of the voting power of the investee. General Feedback: Learning objective 32.2: discuss the concepts of significant influence and joint control. 3. The following are regarded as factors indicating the existence of significant influence over another entity:

a. I. *b. II. c. III. d. IV. General Feedback: Learning objective 32.2: discuss the concepts of significant influence and joint control. 4. For the purposes of equity accounting, significant influence is regarded as the power of an investor to:

32.2

Testbank to accompany Financial reporting 4e by Loftus et al.

a. dominate the financing decisions of an entity. b. control the financial and operating policies of an associate. c. participate in the day-to-day management of a joint venture interest. *d. participate in the financial and operating policy decisions of an investee. General Feedback: Learning objective 32.2: discuss the concepts of significant influence and joint control. 5. Which of the following statements is incorrect in relation to the significant influence and joint control? a. There must be at least two parties who have contractually agreed to share the control of the investee. b. Decisions about the relevant activities of the investee must be approved by all the parties who share the control of the investee. *c. If the investor has no intention to participate in the financial and operating policy decision of the investee, the investor is not an associate. d. The investor has the power or the capacity to participate in the decision making of the investee. General Feedback: Learning objective 32.2: discuss the concepts of significant influence and joint control. 6. David Limited acquired a 20% share in Tennant Limited for $52. David Limited has no other investments. At the date on which it became an associate, Tennant Limited had the following equity (which reflected the fair value of net assets on that date): Share capital $155 Retained earnings $110 At the end of the financial year following the investment, Tennant Limited generated a profit of $96 000. After applying the equity method of accounting, David Limited will have the following carrying amount for the investment: a. $19 200 b. $32 800 c. $52 000 *d. $71 200 General Feedback: Learning objective 32.4: apply the equity method to an investment in an associate or joint venture. Feedback: $52 000 + ($96 000 x 20%)

32.3

Chapter 32: Associates and joint ventures Not for distribution in full. Instructors may assign selected questions in their LMS.

7. Robert Limited acquired a 25% interest in Jones Limited for $80. Robert holds other equity investments but does not prepare consolidated financial statements. Jones Limited revalued its plant and equipment class of assets during the current financial period which resulted in an increase to the asset revaluation surplus account of $36 000. The balance of the Investment in Associate account at the end of the current financial period is: a. $29 000. b. $80 000. c. $86 300. *d. $89 000. General Feedback: Learning objective 32.4: apply the equity method to an investment in an associate or joint venture. 8. The equity method of accounting for an investment in an associate includes the following steps:

*a. I. b. II. c. III. d. IV. General Feedback: Learning objective 32.4: apply the equity method to an investment in an associate or joint venture. 9. Daana Ltd holds 20% of the issued shares of Eada Ltd. Daana Ltd acquired these shares on 1 July 2022 and on this date all the identifiable assets and liabilities of Eada Ltd were recorded at amounts equal to their fair values. Daana Ltd does not have subsidiaries, and records this investment in the associate, Eada Ltd, in accordance with IAS 28/AASB 128. Eada Ltd recorded an after-tax profit of $277,000 in the 2023-2024 period. During this period, the following events occurred between Daana Ltd and Eada Ltd: a. $270,140. b. $268,740.

32.4

Testbank to accompany Financial reporting 4e by Loftus et al.

b. On 1 October 2023, Eada Ltd sold office furniture to Daana Ltd for $32,000. The office furniture had originally cost Eada Ltd $50 000 and was written down to $25,000 for both tax and accounting purposes at the time of sale. Both companies depreciate office furniture at the rate of 20% p.a. on cost using straight-line depreciation method. The equity carrying amount of the investment in Eada Ltd at 30 June 2024 is: c. $276,510. *d. $269,790. Feedback: b) Learning objective 32.4: apply the equity method to an investment in an associate or joint venture. 10. On 1 July 2021 Barry Ltd acquired 25% of the ordinary issued share capital of Charlie Ltd for $300 000. This investment gave rise to significant influence. The share capital and reserves of Charlie Ltd at 1 July 2021 were:

All the identifiable net assets of Charlie Ltd were stated at fair value at the date of acquisition except for equipment whose carrying value was $30 000 less than the fair value. The tax rate is 30%. Goodwill arising on Barry's acquisition of Charlie was: a. $21 500 b. $29 000 *c. $23 750 d. $25 000 General Feedback: Learning objective 32.5: apply the equity method when there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase. Feedback: $1084 000 + (30 000 x [1-30%]) = $1105 000. Share of associate at 25% = $276 250. Goodwill = $300 000 - $276 250 = $23 750. 11. Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of an associate are: a. recognised in the books of the investee. b. recognised in the books of the investor. *c. notional adjustments and not recorded in the books of the investee. d. relate to realised transactions and so are recognised directly by the investee.

32.5

Chapter 32: Associates and joint ventures Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 32.5: apply the equity method when there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase. 12. When goodwill is acquired by an investor in an associate, the amortisation of goodwill is: *a. not permitted. b. included in the revaluation of the investment. c. spread evenly across the useful life of the investment. d. included in the determination of the investor's share of the associate's profit or loss. General Feedback: Learning objective 32.5: apply the equity method when there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase. 13. On 1 July 2023 Alpha Ltd acquired a 40% share of Beta Ltd. At that date, the following assets had carrying amounts different to their fair values in Beta's books:

All inventories were sold to third parties by 30 June 2024. On 1 July 2023, the plant had a remaining useful life of 2 years. The tax rate is 30%. The adjustment required to the Investment in Associate account at 30 June 2024 in relation to the above assets is: *a. $1 260 b. $1 400 c. $1 750 d. $3 150 General Feedback: Learning objective 32.5: apply the equity method when there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase. Feedback: Inventories adjustment: (20000 - 18000) x (1-30%) = 1400. Depreciation adjustment: (35000 - 30000) x (1-30%) / 2 years = 1 750. Total adjustments = 1400 + 1750 = 3150. Associate's share at 40% = 3150 x 40% = 1260. 14. Where an acquisition in an associate results in an excess, how is the excess accounted for in the year of acquisition? a. CR Investment in associate account. *b. CR Share of associate profit account. c. DR Share of associates retained earnings account. © John Wiley and Sons Australia, Ltd 2022

32.6

Testbank to accompany Financial reporting 4e by Loftus et al.

d. No adjustment is required due to the single line method of accounting followed under the equity method. General Feedback: Learning objective 32.5: apply the equity method when there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase. 15. Carnation Ltd purchased a 25% shareholding in Bloom Ltd on 1 January 2023 for $90000. Bloom Ltd's assets were recorded at fair values and its owners' equity, totalling $350 000, was represented as follows: Share capital $100000 General reserve $60000 Asset revaluation surplus $50 Retained profits $140000 During July 2023, Bloom Ltd paid an interim dividend of $15000. At 31 December 2023, Bloom Ltd reported: Profit after tax for 2023 $64000 Final dividend payable $30000 A transfer to the general reserve $20000 Increase of the asset revaluation surplus to $80000 The equity carrying amount of the investment in Bloom Ltd at 31 December 2023 is: a. $106 000 b. $109 750 *c. $102 250 d. $113 500 General Feedback: Learning objective 32.5: apply the equity method there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase . 16. On 1 January 2024, Hakan Ltd acquired 25% of the issued shares of Igasho Ltd, which became its associate. At this date, all the identifiable assets and liabilities of Igasho Ltd were recorded at fair value except for the following:

The plant has a further 5-year life and the inventories were all sold by 30 June 2024. In the reporting periods ending 30 June 2024, the Igasho Ltd reported a profit after tax of $120,000. The tax rate is 30%. What is the correct adjustments required to the investment in associate account at 30 June 2024 in relation to the above assets? a. Increase $7,700.

32.7

Chapter 32: Associates and joint ventures Not for distribution in full. Instructors may assign selected questions in their LMS.

b. Increase $1,925. *c. Decrease $1,400. d. Decrease $5,600. General Feedback: Learning objective 32.5: apply the equity method when there are fair value adjustments for identifiable assets and liabilities at acquisition date and goodwill or gain on bargain purchase. Feedback: Depreciation adjustment: (130,000 - 100,000) x (1-30%) / 5 years x ½ year = 2,100. Inventory adjustment: (40,000 - 35,000) x (1-30%) = 3,500 Total adjustments = 2,100 + 3,500 = 5,600. Associate's share at 40% = 5,600 x 25% = 1,400. 17. Carnation Ltd purchased a 25% shareholding in Bloom Ltd on 1 January 2023 for $90Bloom Ltd's assets were recorded at fair values and its owners' equity, totalling $350 000, was represented as follows: Share capital $100 General reserve $60 Asset revaluation surplus $50 Retained profits $140 During July 2023, Bloom Ltd paid an interim dividend of $15At 31 December 2023, Bloom Ltd reported: Profit after tax for 2023 $64 Final dividend payable $30 A transfer to the general reserve $20 Increase of the asset revaluation reserve to $80 Assuming that Carnation Ltd applies the equity method in its own books, the entry to record the dividend receivable from Bloom Ltd during the year ended 31 December 2024 would include a: a. DR Dividend revenue account. b. DR Investment in associate account. c. CR Dividend revenue account. *d. CR Investment in associate account. General Feedback: Learning objective 32.6:apply the equity method making adjustments for effects of inter-entity transactions. 18. Where there are transactions between the investor and associate that result in an unrealised profit, the investor's share of the associate's profit is: a. affected only if the transaction is an upstream one. b. affected only if the transaction is a downstream one. *c. affected regardless of whether the transaction is an upstream or downstream one. d. not affected at all regardless of whether the transaction is an upstream or downstream one.

32.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 32.6:apply the equity method making adjustments for the effects of interentity transactions. 19. Where an investor sells inventories to an associate and the inventories are still on hand at the end of the year the investor's share of the associate's profits is: *a. decreased by the investor's share of the unrealised profit. b. increased by the investor's share of the unrealised profit. c. not affected as the unrealised profit is in the books of the investor, not the associate. d. not affected as unrealised profits are only considered to arise in a parent-subsidiary relationship. General Feedback: Learning objective 32.6 apply the equity method making adjustments for the effects of interentity transactions. 20. Where an investor sells inventories to an associate in a prior year and the inventories are sold by the associate during the current year the investment in associate account is: a. unaffected. b. increased by the full amount of the realised profit. *c. increased by the investor's share of the realised profit. d. decreased by the investor's share of the realised profit. General Feedback: Learning objective 32.6: apply the equity method making adjustments for the effects of interentity transactions. 22. Clove Ltd owns 40% of Bark Ltd. Bark Ltd's profit after tax for the year ended 30 June 2023 is $120The tax rate is 30%. On 1 July 2021, Bark Ltd sold an item of plant to Clove Ltd for $164 000. The carrying amount of the asset on this date in Bark Ltd's records was $152 000. The plant had a remaining useful life of 4 years. Clove's share of Bark's profit for the year ended 30 June 2023 is: a. $41 000 b. $44 000 *c. $48 840 d. $52 800 General Feedback:

32.9

Chapter 32: Associates and joint ventures Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 32.6: apply the equity method making adjustments for the effects of interentity transactions. Feedback: Depreciation adjustment for sale of plant in previous year = ($164 000 $152 000) / 4 x 0.7 x 40% = $840. Total share of profit = ($120 000 x 40%) + $840. 23. Coral Limited acquired a 40% investment in Reef Limited for $120000. Reef declared and paid a dividend of $30000. Coral Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is: a. DR Dividends payable $12 000; CR Cash $12 000 b. DR Cash $12 000; CR Dividend revenue $12 000 *c. DR Cash $12 000; CR Investment in associate $12 000 d. DR Investment in associate $12 000; CR Dividend revenue $12 000. General Feedback: Learning objective 32.6: apply the equity method making adjustments for the effects of interentity transactions. 24. On 1 July 2023 Fred Ltd acquired 30% of the shares of Barney Ltd for $240. At that date, the equity of Barney Ltd was $800, with all identifiable assets and liabilities being measured at fair value. Profits/ (losses) made since the date of acquisition are as follows:

There have been no dividends paid or movements in reserves since the date of acquisition. At 30 June 2025 the equity accounted balance of the investment in Barney was: a. $240 000 *b. $144 000 c. $252 000 d. $108 000 General Feedback: Learning objective 32.7: apply the equity method to investments in associates and joint ventures where these entities incur losses. 25. On 1 July 2023 Fred Ltd acquired 30% of the shares of Barney Ltd for $240000. At that date, the equity of Barney Ltd was $800 with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows: © John Wiley and Sons Australia, Ltd 2022

32.10

Testbank to accompany Financial reporting 4e by Loftus et al.

There have been no dividends paid or movements in reserves since the date of acquisition. At 30 June 2027 the equity accounted balance of the investment in Barney was: *a. $0 b. $4 500 c. ($1 500) d. $240 000 General Feedback: Learning objective 32.7: apply the equity method to investments in associates and joint ventures where these entities incur losses. Feedback: At this date, Fred's share of the accumulated losses is $241 500. Can only recognise share of accumulated losses up to the value of the original investment of $240 000. 26. On 1 July 2023 Fred Ltd acquired 30% of the shares of Barney Ltd for $240000. At that date, the equity of Barney Ltd was $800 with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows:

There have been no dividends paid or movements in reserves since the date of acquisition. At 30 June 2028 the equity accounted balance of the investment in Barney was: a. nil. b. $228 300 c. $13 200 *d. $11 700 General Feedback: Learning objective 32.7: apply the equity method to investments in associates and joint ventures where these entities incur losses.

32.11

Chapter 32: Associates and joint ventures Not for distribution in full. Instructors may assign selected questions in their LMS.

27. If an associate incurs losses the investor is required to: a. reclassify the investment as a current asset. b. ignore the losses for the purposes of equity accounting adjustments. *c. recognise losses to the point where the carrying amount of the investment is zero. d. recognise losses only to the point where the carrying amount is equal to the initial investment. General Feedback: Learning objective 32.7: apply the equity method to investments in associates and joint ventures where these entities incur losses. 28. Where an investor has discontinued the use of the equity method because the associate has incurred losses it must disclose the: a. reason why it has discontinued the method. b. accounting policy it has adopted in place of the equity method. c. effect on the statement of changes in equity if it had continued to use the method. *d. unrecognised share of current period and cumulative losses of the associate. General Feedback: Learning objective 32.8: describe the disclosures required in relation to investments in associates and joint ventures. 29. Investments in associates accounted for using the equity method are presented in the statement of financial position as part of: a. equity. b. current assets. *c. non-current assets. d. non-current liabilities. General Feedback: Learning objective 32.8: describe the disclosures required in relation to investments in associates and joint ventures. 30. When disclosing information about investments in associates, AASB 12/IFRS 12 Disclosure of Interests in Other Entities requires separate disclosure of which of the following? I. Unrecognised share of losses in associates, in the Notes to the accounts. II. Shares of changes recognised directly in the associate's equity, in the statement of changes in equity. III. Share of profit or loss of associates, in the statement of profit or loss and other comprehensive

32.12

Testbank to accompany Financial reporting 4e by Loftus et al.

income. IV. Carrying amounts of investments in associates, in the statement of financial position. *a. I, II, III and IV. b. I, II and IV only. c. I, II and III only. d. II, III and IV only. General Feedback: Learning objective 32.8: describe the disclosures required in relation to investments in associates and joint ventures.

32.13

Chapter 33: Joint arrangements Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 33: Joint arrangements Multiple choice questions 1. Which of the following statements is incorrect? a. Joint arrangements may be entered into to manage risks involved in a project. *b. Joint arrangements require investors to have equal interests in the joint arrangement. c. Joint arrangements may be entered into to provide the parties with access to new technology or new markets. d. The key feature of a joint arrangement is that the parties involved have joint control over the decision making in relation to the joint arrangement. General Feedback: Learning objective 33.1: discuss the use of joint arrangements by companies to structure their business. 2. AASB 11 Joint Arrangements, provides that joint control exists where: *a. no single party is in a position to control the activity unilaterally. b. no one party may be appointed as the manager of the joint arrangement. c. one party alone has power to control the strategic operating decisions of the joint arrangement. d. the decisions in areas essential to the goals of the joint arrangement do not require the consent of the parties. General Feedback: Learning objective 33.2: explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 3. The particular relationship between parties that signifies the existence of a joint arrangement is: a. control over the operating policies of one party by another party. b. shared influence by two parties over the activities of another party. *c. joint control by the parties over the activities of an operation. d. significant influence by one party over the other party. General Feedback: Learning objective 33.2: explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations.

33.2

Testbank to accompany Financial reporting 4e by Loftus et al.

4. The matters generally dealt with in a joint arrangement contract include the:

*a. I. b. II. c. III. d. IV. General Feedback: Learning objective 33.2: explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 6. Which of the following statements is correct? a. All joint arrangements which are not structured through a separate vehicle are classified as joint ventures. b. For a joint venture, the rights pertain to the rights and obligations associated with individual assets and liabilities, whereas with a joint operation, the rights and obligations pertain to the net assets. c. Where the joint operators have designed the joint arrangement so that its activities primarily aim to provide the parties with an output it will be classified as a joint venture. *d. In considering the legal form of the separate vehicle if the legal form establishes rights to individual assets and obligations, the arrangement is a joint operation. If the legal form establishes rights to the net assets of the arrangement, then the arrangement is a joint venture. General Feedback: Learning objective 33.2: explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 7. Harry Limited and Potter Limited agreed to form a joint operation to offer health services. To start the operation the joint operators agreed to contribute cash of $100 each. The joint operation will record which of the following entries to recognise this event? a. DR Joint operator contributions $200 CR Cash $200 b. DR Cash $200 CR Joint operator contributions $200

33.3

Chapter 33: Joint arrangements Not for distribution in full. Instructors may assign selected questions in their LMS.

c. DR Venturer's equity - Harry $100 DR Venturer's equity - Potter $100 CR Cash $200 *d. DR Cash $200 CR Joint operation contribution - Harry $100 CR Joint operation contribution - Potter $100 General Feedback: Learning objective 33.3: explain the accounting undertaken by the joint operation. 8. Cash contributed to a joint operation was used to purchase machinery ($500and raw materials ($120000). The following entry would be part of the overall recording of these transactions: *a. DR Machinery $500 DR Raw materials $120 CR Cash $620 b. DR Work in progress $620 CR Joint operation capital $620 c. DR Cash $620 CR Contribution to joint operation $620 d. DR Cash $620 CR Machinery $500 CR Raw materials $120 General Feedback: Learning objective 33.3: explain the accounting undertaken by the joint operation. 9. Three joint operators are involved in a joint operation that manufactures fishing boats. At the beginning of the year the joint operation held $45in cash. During the year the joint operation incurred the following expenses: Wages paid $60Overheads accrued $20Additionally, creditors amounting to $45were paid and the joint operators contributed $27 500 cash each to the joint operation. The balance of cash held by the joint operation at the end of the year is: a. $2 500 b. $42 500 c. $25 000 *d. $22 500 General Feedback: Learning objective 33.3: explain the accounting undertaken by the joint operation. Feedback: 45 000 + (27 500 x 3) - 60 000 - 45 000 = $22 500

33.4

Testbank to accompany Financial reporting 4e by Loftus et al.

10. Harry Ltd and Potter Ltd agreed to form a joint operation to offer health services. To start the operation, the joint operators agreed to contribute cash of $500,000 each. The joint operation will record which of the following entries to recognise this event? a. DR Joint operation $1,000,000 CR Cash_Harry Ltd $500,000 CR Cash_Potter Ltd $500,000 b. DR Cash $1,000,000 CR Joint operation revenue $1,000,000 c. DR Joint operation $1,000,000 CR Joint operation_equity $1,000,000 *d. DR Cash $1,000,000 CR Joint operation contribution - Harry $500,000 CR Joint operation contribution - Potter $500,000 General Feedback: Learning objective 33.3: explain the accounting undertaken by the joint operation. 11. Which of the following statement is correct in relation to accounting for joint venture and accounting for joint operation? a. Accounting for a joint venture is done by the application of the equity method. *b. The key information related to the joint operations can be found in the statement of financial position and the statement of profit and loss. c. If the joint operation distributes the output to the operators, there is no profit or loss account raised by the operation. d. Accounting records do not need to be prepared for the joint operation itself. General Feedback: Learning objective 33.3: explain the accounting undertaken by the joint operation. 12. Jack Limited and Beanstalk Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of $42to Jack Limited during the current period. The cost to Jack Limited of supplying the management service was $35000. Jack Limited records the management fee revenue as follows: *a. DR Cash $42 CR Fee revenue $42 b. DR Cash $35 CR Fee revenue $35 c. DR Cash $28 000 CR Fee revenue $28 d. DR Cash $7 CR Fee revenue $7

33.5

Chapter 33: Joint arrangements Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 13. A 50:50 joint operation was commenced between two participants. Mary Company contributed cash of $90and Strickland Company contributed a Building with a fair value of $90and a carrying amount of $75Using the line-by-line method of accounting, Strickland Company would record: a. DR Building in JO $75 CR Building $75 b. DR Building in JO $945000 CR Building $37 500 CR Gain on sale of building $7 500 c. DR Investment in joint operation $45 CR Building $37 500 CR Gain on sale of building $7 500 *d. DR Cash in JO $45 DR Building in JO $45 CR Building $75 CR Gain on sale of building $15 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 14. A joint operation holds plant and equipment with a carrying amount of $450. The two joint operators participating in this arrangement share control equally. They also depreciate plant and equipment using the straight-line method. The plant and equipment has a useful life of 6 years. At reporting date, each joint operator must recognise the following entry, in relation to depreciation, in its records: *a. DR Depreciation $37 500. b. DR Depreciation $75 c. DR Assets in joint operation $37 500. d. DR Investment in joint operation $75 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 15. In relation to the supply of a service to a joint operation by one of the joint operators, which of the following statements is correct?

33.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. A joint operator can recognise 100% of the earnings through the supply of services to the joint operation. *b. A joint operator cannot earn a profit on supplying services to itself. c. A joint operator is entitled to recognise a profit from the supply of services to itself. d. A joint operator is not able to recognise the service revenue or service cost for the services supplied to the joint operation. General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 16. Justice Company and League Company equally share the output of their joint operation. The joint operation paid a service fee of $60 to Justice Company during the current period. The cost incurred by Justice Company to supply the service was $48. Justice Company records the service fee revenue as: *a. DR Cash $60 CR Fee revenue $60 b. DR Cash $48 CR Fee revenue $48 c. DR Cash $30 000 CR Fee revenue $30 000 d. DR Cash $24 CR Fee revenue $24 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 17. Rose Limited and Petal Limited formed a joint operation and share in the output of the joint operation 75:25. The joint operation paid a management fee of $250 to Rose Limited during the current period. The cost to Rose Limited of supplying the management service was $200. The amount of profit that Rose Limited will recognise in relation to the provision of the management fee to the joint operation is: a. $50 000 b. $37 500 *c. $12 500 d. $0 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation.

33.7

Chapter 33: Joint arrangements Not for distribution in full. Instructors may assign selected questions in their LMS.

18. Four joint operators agree to an arrangement in which they have an equal share in a joint operation that produces sunflower oil. The work undertaken in setting up the joint operation cost $200 and each operator contributed in cash. Each operator will need to recognise the following accounting entry: *a. DR Cash in JO $50 CR Cash $50 b. DR Inventories in JO $50 CR Cash $50 c. DR Cash in JO $200 CR Cash $200 d. DR Cost of joint operation product $200 CR Cash $200 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 19. A 60:40 joint operation was commenced between two participants. Andrews Limited contributed cash of $90, and Michaels Limited contributed a Building with a fair value of $60. Using the line-by-line method of accounting, Andrews Limited would record which of the following entries? a. DR Building in JO $90 CR Cash $90 b. DR Cash in JO $90 CR Cash $90 *c. DR Cash in JO $54 DR Building in JO $36 CR Cash $90 d. DR Investment in joint operation $90 CR Cash $90000 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 20. A 70:30 joint operation was commenced between two participants. Marian Limited contributed cash of $210, and Keyes Limited agreed to provide technical services to the joint operation over a period of three years. The fair value of the services was determined to be $90 and the cost to provide the services was estimated to be $81. Using the line-by-line method of accounting, Keyes Limited would record which of the following entries?

33.8

Testbank to accompany Financial reporting 4e by Loftus et al.

a. DR Cash in JO $90 CR Obligation to JO $90 *b. DR Cash in JO $63000 CR Obligation to JO $56 700 CR Profit on provisions of services $ 6 300 c. DR Cash in JO $81 CR Obligation to JO $81 d. DR Cash in JO $81 DR Receivable in JO $ 9 CR Obligation to JO $90 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. Feedback: Cash in JO = $210 000 x 0.3. Obligation to JO = $81 000 x 0.7. Profit = $9 000 x 0.7 21. Jensen Ltd and Harris Ltd have established the JH Joint Operation. Jensen Ltd has a 75% interest in the joint operation and Harris Ltd has a 25% interest. Jensen Ltd contributed an asset with a carrying amount of $130 000 and a fair value of $150 000 and Harris Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $50 000 and the cost to provide the services was estimated at $45000 at the inception of the joint operation. As part of its initial contribution entry Jensen Ltd will record a: a. DR Services receivable in JO $50 000. *b. DR Plant in JO $97 500. c. CR Gain on sale of plant $15 000. d. CR Plant $150 000. General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 22. Jensen Ltd and Harris Ltd have established the JH Joint Operation. Jensen Ltd has a 75% interest in the joint operation and Harris Ltd has a 25% interest. Jensen Ltd contributed an asset with a carrying amount of $130 000 and a fair value of $150 000 and Harris Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $50 000 and the cost to provide the services was estimated at $45 000 at the inception of the joint operation. As part of its initial contribution entry Harris Ltd will record a: a. DR Plant in JO $12 500. b. DR Services receivable in JO $45 000.

33.9

Chapter 33: Joint arrangements Not for distribution in full. Instructors may assign selected questions in their LMS.

c. CR Gain on provision of services $5 000. *d. CR Obligation to JO $33 750. General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 23. On 1 July 2023, the North & South Joint Operation was established. The two joint operators participating in this arrangement, North Ltd and South Ltd, share control equally. Both joint operators contributed cash to establish the joint operation. The joint operation holds equipment with a carrying amount of $600 000. Both joint operators depreciate equipment using the straight-line method and the depreciation is regarded as a cost of production. The equipment has a useful life of 5 years. At 30 June 2024 North Ltd had sold all of the inventories distributed to it and South Ltd had sold 50% of the inventories distributed to it. At 30 June 2024 South Ltd must recognise the following entry, in relation to depreciation, in its records: *a. DR Inventories $30 000. b. DR Depreciation expense $120 000. c. DR Cost of goods sold $120 000. d. DR Accumulated depreciation $60 000. General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 24. When eliminating any unrealised profit arising when a joint operator provides services to a joint operation the profit is eliminated against: a. retained earnings. b. cost of goods sold. c. the investment in the joint operation. *d. work in progress, finished goods and other inventories related accounts. General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 26. On 1 July 2023, Perth Ltd entered into a 50:50 joint operation with Hobart Ltd to develop robotic home appliances. Each operator's initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash.

33.10

Testbank to accompany Financial reporting 4e by Loftus et al.

Tasmania Ltd's initial contribution entry will include a debit to the Cash in JO account of: *a. $750 000. b. $1 000 000. c. $1 500 000. d. $2 000 000. General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 27. On 1 July 2023, Perth Ltd entered into a 50:50 joint operation with Hobart Ltd to develop robotic home appliances. Each operator's initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash.

33.11

Chapter 33: Joint arrangements Not for distribution in full. Instructors may assign selected questions in their LMS.

By 30 June 2024, Tasmania Ltd has sold all of the robotic appliances distributed to it by the joint operation and Perth has sold 60% of its distribution of robotic appliances. The value of these inventories sold by Perth Ltd is: *a. $255 000 b. $285 000 c. $425 000 d. $475 000 General Feedback: Learning objective 33.4: prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. Feedback: Cost of inventories $950 000 less finished goods inventories $100 000 = $850 000. Each JO receives 50% of $850 000 = $425 000. Perth sold 60% = $425 000 x 0.6 = $255 000.

33.12

Testbank to accompany Financial reporting 4e by Loftus et al.

28. When a joint operator is accounting for an interest in a joint operation it is required to recognise which of the following in its financial statements?

a. I. b. II. c. III. *d. IV. General Feedback: Learning objective 33.5: discuss the disclosures required in relation to joint operations. 29. According to AASB 12/IFRS 12, which of the following information regarding the interests in joint arrangements needs to be disclosed?

a. I. *b. II. c. III. d. IV. General Feedback: Learning objective 33.5: discuss the disclosures required in relation to joint operations.

33.13

Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 34: Insolvency and liquidation Multiple choice questions 1. refers to when a company is unable to pay its debts as they become due and payable. a. Liquidation. *b. Insolvency. c. Receivership. d. Administration. General Feedback: Learning objective 34.1: describe the meaning of insolvency. 2. Which of the following is not a form of external administration prescribed by the Corporation Act? *a. insolvency. b. liquidation. c. receivership. d. administration. General Feedback: Learning objective 34.1: describe the meaning of insolvency. 3. Which of the following statements is incorrect? a. receivers have power to do whatever is necessary to achieve the objectives for which they were appointed. b. receivers are normally appointed by the court or by secured creditors. c. secured creditors have a 'charge' over some or all of the company's assets. *d. receivers are responsible to the company. General Feedback: Learning objective 34.2: describe the role of a receiver appointed by a secured creditor. 4. The receiver's role normally includes the following except for: a. collecting and selling enough of the charged assets to repay the debt owed to the secured creditor. b. paying out the money collected in the order required by the Corporation Act. *c. liquidating the insolvent company.

34.2

Testbank to accompany Financial reporting 4e by Loftus et al.

d. reporting to ASIC any offenses or other irregular matters they discover in performing their duties. General Feedback: Learning objective 34.2: describe the role of a receiver appointed by a secured creditor. 5. A receiver should be: *a. a registered liquidator. b. a secured party in relation to any property of the corporation c. an auditor or a director, secretary, senior manager or employee of the corporation. d. an auditor or a director, secretary, senior manager or employee of the body corporate related to the corporation. General Feedback: Learning objective 34.2: describe the role of a receiver appointed by a secured creditor. 6. Which of the following statements is incorrect? *a. A receiver must obtain permission from the company before selling any assets. b. A receiver is required to open a special bank account and must lodge a statement of receipts and payments every 6 months. c. Within 14 days of the receiver's appointment, the company is required to submit a report to the receiver detailing the affairs of the company. d. Wages, superannuation contributions, the superannuation guarantee change, long service leave, sick leave and retrenchment payments are to be given priority over circulating security interests when the company is in receivership, but not yet in the process of being wound up. General Feedback: Learning objective 34.2: describe the role of a receiver appointed by a secured creditor. 7. Which of the following is not an example of how a receivership can end. a. The receiver can resign. *b. A voluntary administrator can be appointed to take over from the receiver. c. The receivership can progress to liquidation and the receiver can be appointed as liquidator. d. The receivership can progress to liquidation and a separate party can be appointed as liquidator. General Feedback: Learning objective 34.2: describe the role of a receiver appointed by a secured creditor.

34.3

Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

8. An administrator may be appointed by: a. the liquidator, but only if the company is solvent. b. the company's shareholders, as a means of dismissing the managers. c. the company's directors, but only after the company becomes insolvent. *d. a secured creditor who is entitled to enforce a charge on the whole of the company's property. General Feedback: Learning objective 34.3: describe the meaning of voluntary administration and identify the requirements imposed on an administrator and on directors of an insolvent company. 9. In relation to the voluntary administration, which of the following statement is incorrect? a. After investigation, the administrator must form an opinion on the three best options available to the creditors b. The company's directors are required to help the administrators in performing their investigation. *c. A director of a company under administration must appoint a liquidator and report this to the administrator. d. The administrator has the power to remove a director of the company from the office. General Feedback: Learning objective 34.3: describe the meaning of voluntary administration and identify the requirements imposed on an administrator and on directors of an insolvent company. 10. An administrator's role is to: I. control the company's business, property and affairs. II. carry on the business and manage the property and the affairs of the company. III. terminate or dispose of all or part of the business or the property of the company. *a. I, II and III b. I and II only c. I and III only d. II and III only General Feedback: Learning objective 34.3: describe the meaning of voluntary administration and identify the requirements imposed on an administrator and on directors of an insolvent company. 11. When an administrator is appointed to a company they must give an opinion as to the best of three options available to creditors. These three options are:

34.4

Testbank to accompany Financial reporting 4e by Loftus et al.

a. I, II and III b. I, II and IV *c. I, III and IV d. II, III and IV General Feedback: Learning objective 34.3: describe the meaning of voluntary administration and identify the requirements imposed on an administrator and on directors of an insolvent company. I. Wind up the company and appoint a liquidator. II. End the voluntary administration and appoint a receiver. III. End the voluntary administration and return the company to the director's control. IV. Approve a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts. 12. The administrator of a company under administration has power to do which of the following? *a. I, II and III b. II and III only c. I and II only d. I and III only General Feedback: Learning objective 34.3: describe the meaning of voluntary administration and identify the requirements imposed on an administrator and on directors of an insolvent company. I. appoint a person as director. II. remove from office a director of the company. III. execute a document, bring or defend proceedings, or do anything else, in the company's name and on its behalf. @ Learning objective 34.3: describe the meaning of voluntary administration and identify the requirements imposed on an administrator and on directors of an insolvent company. 13. Which of the following is entitled to make an application to the court for an insolvent company to be wound up? *a. ASIC. b. A court appointed receiver. c. Employees of the company. d. The company's external auditor. General Feedback: Learning objective 34.4: describe the meaning of liquidation and compare the two modes of liquidation.

34.5

Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

14. Under s. 461 of the Corporations Act, general grounds on which the court can order a winding up include: I. The company has no members. II. The court is of the opinion that it is just and equitable that the company be wound up. III. The company has not commenced business within twelve months of its incorporation. a. I, II and IV b. II, III and IV c. II and III only *d. I, II, III and IV General Feedback: Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 15. Under the Corporations Act, tasks of a liquidator include which of the following? I. Determine the creditors and order of priority of payment. II. Bring about the dissolution of the company. III. Take possession of the company's assets. *a. I, II and III b. I and II only c. I and III only d. II and III only General Feedback: Learning objective 33.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 16. After receiving the statement of affairs from the directors, the liquidator must submit a preliminary report to ASIC within: a. 14 days. *b. 2 months. c. 6 months. d. 12 months. General Feedback: Learning objective 3\4.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation.

34.6

Testbank to accompany Financial reporting 4e by Loftus et al.

17. The report as to affairs (Form 507) is required to be prepared by the: a. liquidator. b. members of the company. *c. directors of the company. d. creditors of the company. General Feedback: Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 18. A declaration of solvency is required to be signed by the directors of the company in order for: a. the court to make an order for liquidation. b. the company to borrow more money from a bank. c. the company to issue more shares to its shareholders. *d. the liquidation to proceed as a members' voluntary winding up. General Feedback: Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 19. Which of the following provides the basis for a voluntary winding up of a company? a. The company is unable to pay its debts. b. The company directors vote to wind up the company. *c. A special resolution is passed by the company to wind up. d. ASIC submits a request for the company to be wound up. General Feedback: Learning objective 34.4: describe the meaning of liquidation and compare the two modes of liquidation. 20. At the commencement of a members' voluntary winding up, a written declaration must be provided by directors stating that all debts will be able to be paid in full within a period of no more than: a. 30 days. b. 6 months. *c. 12 months. d. 2 years. General Feedback:

34.7

Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 21. Under a members' voluntary winding up, the directors of the company are required to prepare which of the following documents? I. Summary of affairs II. Statement of affairs III. Declaration of solvency IV. Preliminary liquidation report *a. II and III. b. I, II and III. c. I, II and IV. d. I, III and IV. General Feedback: Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 22. Which of the following is not grounds under s. 461 of the Corporations Act on which the court can order a winding up? I.The company has no members.II.The company has resolved that it be wound up by the court.III.The company has not commenced business within three months of its incorporation. IV.The court is of the opinion that it is just and equitable that the company be wound up.@ Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. *a. III only b. IV only c. I and II only d. III and IV only 23. A voluntary winding up commences when: a. the company is unable to pay its debts. b. ASIC applies to the court for the winding up. *c. the members of the company pass a special resolution to wind up. d. an application is filed with the court by the company's external auditor. General Feedback: Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation.

34.8

Testbank to accompany Financial reporting 4e by Loftus et al.

24. A voluntary winding up may be put in place by either: *a. the company's members or creditors. b. the company's directors or creditors. c. ASIC or the company's members. d. ASIC or the company's creditors. General Feedback: Learning objective 34.4: describe the meaning of liquidation and the liquidator's duties, and compare the two modes of liquidation. 25. Under a court ordered winding up, a liquidator has the power to: I. dispose of the property of the company. II. use any legal methods to obtain money from a debtor. III. commence legal proceedings on behalf of the company. IV. pay the company's shareholders before paying the creditors. a. II, III and IV. b. I, III and IV. c. I, II and IV. *d. I, II and III General Feedback: Learning objective 34.5: describe the powers of a liquidator. 26. Under a voluntary winding up, a liquidator cannot: *a. make concessions on any debts except as under s. 477(2A) of the Corporation Act. b. exercise the power of the court of fixing a time when debts and claims must be proved. c. exercise any power the Corporation Act confers on a liquidator in a winding up by the court. d. convene a general meeting of the company to obtain agreement for matters as the liquidator thinks fit. General Feedback: Learning objective 34.5: describe the powers of a liquidator. 27. Which of the following statements is incorrect? a. A liquidator of a company may appoint a solicitor to assist their duties. b. A liquidator of a company must not enter into an agreement on behalf of the company, if not approved by the court.

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Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

c. A liquidator of a company may carry on the business of the company for the beneficial disposal. *d. A liquidator of a company must make concessions on any debts if the amount claimed is more than $20,000. General Feedback: Learning objective 34.5: describe the powers of a liquidator. 28. Which of the following statements is correct? I. Debts may be admitted by the liquidator without formal proof. II. All creditors' claims are admissible to proof against the company in liquidation. III. The size of any debts is calculated for the purpose of the winding up as at the day on which the winding up is taken to have begun. a. I only b. II only c. III only *d. I, II and III General Feedback: Learning objective 34.6: determine how a company's debts are proven for liquidation. 29. In relation to the order of priority of payment of debts upon liquidation, which of the following statements is correct? a. Deferred creditors are paid before secured creditors. b. Deferred creditors are paid before ordinary unsecured creditors. *c. Preferential unsecured creditors are paid before deferred creditors. d. Ordinary unsecured creditors are paid before preferential unsecured creditors. General Feedback: Learning objective 34.7: determine the order of priority of payment of the company's debts on liquidation. 30. Claims against a company whereby the creditor has a charge against specific property is known as a: a. floating charge. b. specific debt covenant. c. circulating security interest. *d. non-circulating security interest. General Feedback:

34.10

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 34.7: determine the order of priority of payment of the company's debts on liquidation. 31. Which of the following is an example of a preferential unsecured creditor? a. Trade creditors. *b. Liquidator's fee. c. Arrears of preference dividends. d. Audit fees payable for normal year-end audit prior to insolvency. General Feedback: Learning objective 34.7: determine the order of priority of payment of the company's debts on liquidation. 32. Which of the following is an example of an ordinary unsecured creditor? *a. Trade creditors. b. Liquidator's remuneration. c. Workers' injury compensation claims. d. Retrenchment payments payable to employees of the company other than a director or a relative of a director. General Feedback: Learning objective 34.7: determine the order of priority of payment of the company's debts on liquidation. 33. Which of the following is an example of a deferred creditor? a. Trade creditors. b. Audit fees payable. c. Liquidator's remuneration. *d. Arrears of preference dividends. General Feedback: Learning objective 34.7: determine the order of priority of payment of the company's debts on liquidation. 34. Which of the following statements is incorrect? a. Most liquidations in Australia do not have sufficient funds to pay creditors. *b. Past members must contribute money for company debts, which have been incurred after they cease to be members.

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Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

c. In the absence of any guidance in the company's constitution, calls in advance with related interest will be repaid before any payments are made to shareholders. d. If the company is limited by shares, members do not have to contribute more than the amount unpaid on the shares for which each is liable as a past or present member. General Feedback: Learning objective 34.8: determine the rights and obligations of contributories on liquidation. 35. The details below were extracted from the accounting records of Capricorn Ltd (a company in the process of liquidation).

Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency. For preference shareholders, the amount of the actual refund or call is: a. A call of $17 500. b. A call of $22 500. *c. A refund of $17 500. d. A refund of $22 500. General Feedback: Learning objective 34.8: determine the rights and obligations of contributories on liquidation. Feedback: If the remaining call of 50 cents is made on ordinary shares the amount to be collected from the ordinary shareholders would be $60 000. Add on the cash available of $10 000 and the total amount of cash that would be available for distribution to shareholders would then be $70 000. The total number of shares held is 160 000. The refund back to preference shareholders is 40 000 / 160 000 x $70 000 = $17 500. 36. The details below were extracted from the accounting records of Capricorn Ltd (a company in the process of liquidation).

Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank

34.12

Testbank to accompany Financial reporting 4e by Loftus et al.

equally, based on the number of shares held, in distributing any surplus or deficiency. For preference shareholders, the amount of the actual refund or call is: a. A call of $20 000. b. A call of $100 000. c. A refund of $20 000. *d. A refund of $40 000. General Feedback: Learning objective 34.8: determine the rights and obligations of contributories on liquidation. Feedback: If the remaining call of 50 cents is made on ordinary shares the amount to be collected from the ordinary shareholders would be $100 000. Add on the cash available of $20 000the total amount of cash that would be available for distribution to shareholders would then be $120 000. The total number of shares held is 300 000. The refund back to preference shareholders is 100 000 / 300 000 x $120 000 = $40 000. 37. The details below were extracted from the accounting records of Capricorn Ltd (ain the process of liquidation).

Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency. What will be the deficiency or surplus apportioned to preference shareholders? a. A surplus of $40 000. b. A surplus of $60 000. *c. A deficiency of $60 000. d. A deficiency of $100 000. General Feedback: Learning objective 34.8: determine the rights and obligations of contributories on liquidation. Feedback: Preference shareholders have previously paid $100 000 and they are to receive a refund of only $40 000. Therefore, the deficiency is $60 000. 38. The details below were extracted from the accounting records of Capricorn Ltd (ain the process of liquidation).

34.13

Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency. For ordinary shareholders, the amount of the actual refund or call is: *a. A call of $220 000. b. A call of $100 000. c. A refund of $20 000. d. A refund of $100 000. General Feedback: Learning objective 34.8: determine the rights and obligations of contributories on liquidation. Feedback: The remaining call of 50 cents on ordinary shares would provide a total cash available for distribution to shareholders of $120 000. The total number of shares held is 300 000. The refund back to preference shareholders is 100 000 / 300 000 x $120 000 = $40 000. There is currently only $20 000 cash available so a call of $20 000 is required. 39. The details below were extracted from the accounting records of Capricorn Ltd (ain the process of liquidation).

Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency. What will be the deficiency or surplus apportioned to ordinary shareholders? a. A surplus of $40 000. b. A deficiency of $100 000. c. A surplus of $100 000. *d. A deficiency of $120 000. General Feedback: Learning objective 34.8: determine the rights and obligations of contributories on liquidation. Feedback: Ordinary shareholders are required to pay an additional $20 000 so that the preference shareholders can receive their refund. Therefore, the total deficiency for ordinary shareholders is $120 000.

34.14

Testbank to accompany Financial reporting 4e by Loftus et al.

40. Which of the following journal entries will be recorded upon realisation of the assets by the liquidator? a. DR Liquidation; CR Liquidator's receipts and payments *b. DR Liquidator's receipts and payments; CR Liquidation c. DR Shareholders' distribution; CR Liquidator's receipts and payments d. DR Liquidator's receipts and payments; CR Revenue from sale of assets General Feedback: Learning objective 34.9: prepare the accounting records necessary for the liquidation of a company. 41. The journal entry to record the distribution of cash to shareholders includes which of the following? a. CR Liquidation. b. CR Shareholders' distribution. *c. DR Shareholders' distribution. d. DR Liquidator's receipts and payments. General Feedback: Learning objective 34.9: prepare the accounting records necessary for the liquidation of a company. 42. Which of the following is not one of the main accounts used for liquidation? a. Liquidation. *b. Liquidator's distribution. c. Shareholders' distribution. d. Liquidator's receipts and payments. General Feedback: Learning objective 34.9: prepare the accounting records necessary for the liquidation of a company. 43. The main purpose of the liquidation account is to: a. record additional calls made on shareholders. b. show the capital amount due to contributories. *c. calculate the deficiency or surplus on liquidation. d. show the final cash payment to each class of contributory. General Feedback:

34.15

Chapter 34: Insolvency and liquidation Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 34.9: prepare the accounting records necessary for the liquidation of a company. 44. The existence of accumulated losses at the commencement of a winding up will *a. increase any deficiency calculated in the liquidation account. b. decrease any deficiency calculated in the liquidation account. c. decrease the liquidator's receipts and payments account. d. Have no impact to the liquidation account. General Feedback: Learning objective 34.9: prepare the accounting records necessary for the liquidation of a company.

34.16

Chapter 35: Accounting for mineral resources Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 35: Accounting for mineral resources Multiple choice questions 1. Which of following statement is incorrect? *a. AASB 6/IFRS 6 is relevant to accounting for the costs incurred during the five stages of extractive activities. b. The costs incurred during the development stage should be classified as a development asset. c. Any exploration and evaluation assets associated with the development must be reclassified as a development asset. d. The balance of deferred costs from the exploration and evaluation is amortised using the production unit method. General Feedback: Learning objective 35.1: Identify the stages of economic activity in the extraction of mineral resources. 2. As per AASB 6 Exploration for and Evaluation of Mineral Resources, mineral resources include: I. Oil II. Minerals III. Natural gas IV. Non-regenerative resources a. I, II and III only b. I, III and IV only c. II, III and IV only *d. I, II, III and IV General Feedback: Learning objective 35.2: describe the objective of AASB 6/IFRS 6. 3. AASB 6/IFRS 6 is an example of: a. a not-for-profit standard. *b. an industry specific standard. c. a standard applicable to disclosing entities. d. a differential reporting standard based on size based criteria. General Feedback: Learning objective 35.2: describe the objective of AASB 6/IFRS 6.

35.2

Testbank to accompany Financial reporting 4e by Loftus et al.

4. Accounting policies for exploration and evaluation costs should be determined in accordance with which accounting standard? *a. AASB 6. b. AASB 8. c. AASB 106. d. AASB 108. General Feedback: Learning objective 35.3: apply the necessary judgement in determining the nature of the activities and related costs considered to be within the scope of AASB 6/IFRS 6. 5. Accounting for the acquisition of equipment to be used in the extraction of mineral resources is covered by: a. AASB 6 Exploration for and Evaluation of Mineral Resources. b. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. *c. AASB 116 Property, Plant and Equipment. d. AASB 138 Intangible Assets. General Feedback: Learning objective 35.3: apply the necessary judgement in determining the nature of the activities and related costs considered to be within the scope of AASB 6/IFRS 6. 6. The scope of AASB 6 is specifically limited to accounting for: *a. exploration and evaluation expenditures. b. exploration, evaluation and development expenditures. c. pre-exploration, exploration and evaluation expenditures. d. pre-exploration, exploration, evaluation and development expenditures. General Feedback: Learning objective 35.3: apply the necessary judgement in determining the nature of the activities and related costs considered to be within the scope of AASB 6/IFRS 6. 7. In the context of AASB 6/IFRS 6, E&E stands for: a. evaluation and extraction. b. extraction and exploration. *c. exploration and evaluation. d. exploration and expenditure. General Feedback:

35.3

Chapter 35: Accounting for mineral resources Not for distribution in full. Instructors may assign selected questions in their LMS.

Learning objective 35.3: apply the necessary judgement in determining the nature of the activities and related costs considered to be within the scope of AASB 6/IFRS 6. 8. Which costs are within the scope of AASB 6? a. Development phase expenditure. *b. Exploration and evaluation phase expenditure. c. Pre-exploration and evaluation phase expenditure. d. Both exploration and development phase expenditure. General Feedback: Learning objective 35.3: apply the necessary judgement in determining the nature of the activities and related costs considered to be within the scope of AASB 6/IFRS 6. 9. Which method of accounting for exploration and evaluation costs is used by most large oil and gas companies? a. The full cost method. b. The appropriation method. *c. The area of interest method. d. The successful efforts method. General Feedback: Learning objective 35.4: evaluate the accounting policy options available for exploration and evaluation expenditures and apply the area of interest method of AASB 6/IFRS 6. 10. Which of the following methods best reflects the traditional concept of an asset? a. The full cost method. b. The appropriation method. c. The area of interest method. *d. The successful efforts method. General Feedback: Learning objective 35.4: evaluate the accounting policy options available for exploration and evaluation expenditures and apply the area of interest method of AASB 6/IFRS 6. 11. Which of the following methods involves capitalising exploration and evaluation costs using a larger cost centre than an area of interest such as a country or region? *a. The full cost method. b. The appropriation method.

35.4

Testbank to accompany Financial reporting 4e by Loftus et al.

c. The area of interest method. d. The successful efforts method. General Feedback: Learning objective 35.4: evaluate the accounting policy options available for exploration and evaluation expenditures and apply the area of interest method of AASB 6/IFRS 6. 12. Which of the following methods best reflects the volatility inherent in E&E activities? a. The full cost method. b. The appropriation method. c. The area of interest method. *d. The successful efforts method. General Feedback: Learning objective 35.4: evaluate the accounting policy options available for exploration and evaluation expenditures and apply the area of interest method of AASB 6/IFRS 6. 13. Subsequent to initial recognition, E&E assets are required to be measured: a. under the cost model. b. under the revaluation model. c. at the lower of the cost and fair value. *d. either under the cost model or revaluation model. General Feedback: Learning objective 35.5: analyse costs incurred during the exploration and evaluation phase and determine if they are available for capitalisation using the area of interest method. 14. The entry to record an obligation for removal and restoration incurred during the exploration and evaluation (E&E) phase of a mining project is: a. DR E&E asset; CR E&E expense b. DR Removal and restoration expense; CR E&E asset *c. DR E&E asset; CR Provision for removal and restoration d. DR E&E expense; CR Provision for removal and restoration General Feedback: Learning objective 35.5: analyse costs incurred during the exploration and evaluation phase and determine if they are available for capitalisation using the area of interest method.. 15. Which of the following is not included as part of the initial cost of exploration and evaluation assets?

35.5

Chapter 35: Accounting for mineral resources Not for distribution in full. Instructors may assign selected questions in their LMS.

a. Trenching. b. Geophysical studies. c. Mining acquisition rights. *d. Pre-exploration survey fees. General Feedback: Learning objective 35.5: analyse costs incurred during the exploration and evaluation phase and determine if they are available for capitalisation using the area of interest method. 16. The majority of an entity's obligations for removal and restorations costs are incurred during which phase of a project? a. Evaluation phase. b. Exploration phase. *c. Development phase. d. Technical feasibility phase. General Feedback: Learning objective 35.5: analyse costs incurred during the exploration and evaluation phase and determine if they are available for capitalisation using the area of interest method. 17. The obligation to record a provision for removal and restoration costs arising from mining exploration and evaluation arises through the application of: a. IFRIC 1. b. AASB 6. *c. AASB 137. d. The Framework. General Feedback: Learning objective 35.5: analyse costs incurred during the exploration and evaluation phase and determine if they are available for capitalisation using the area of interest method. . 18. Which of the following statements is correct in relation to the use of the revaluation model to subsequently account for E&E assets? a. The revaluation model can only be used to account for tangible E&E assets. *b. The revaluation model can be used for tangible E&E assets where the fair value can be reliably measured. c. The revaluation model can be used for intangible E&E assets where the fair value can be reliably measured.

35.6

Testbank to accompany Financial reporting 4e by Loftus et al.

d. The revaluation model can be used for tangible E&E assets only where there is an active market for the assets. General Feedback: Learning objective 35.5: analyse costs incurred during the exploration and evaluation phase and determine if they are available for capitalisation using the area of interest method . 19. Which of the following are included in AASB 6/IFRS 6 as factors indicating the E&E assets may be impaired? I. Where there is no budget or plan for the incurrence of further substantial E&E expenditure in the specific area. II. Whether the exploration rights for the specific area have expired or are expected to expire in the near future and there is no expectation of renewal. III. Where the entity has established that the cost of the E&E asset is unlikely to be recovered in full from the successful development or sale of the specific area. IV. Where the entity had decided to discontinue E&E activities in the specific area on the basis that such activities have not led to the discovery of commercially viable quantities of mineral resources. *a. I, II and IV. b. I, II and III. c. I, III and IV. d. II, III and IV. General Feedback: Learning objective 35.6: explain how impairment applies to exploration and evaluation assets. 20. Which of the following statements in relation to assessing E&E assets for impairment is correct? a. AASB 6/IFRS 6 allows E&E assets to be tested for impairment at the individual asset level. b. AASB 6/IFRS 6 does not allow the reversal of impairment write-downs made against E&E assets. *c. The level at which and E&E asset is tested for impairment may consist of one or more cashgenerating units. d. AASB 6/IFRS 6 allows the cash-generating unit or group of cash-generating units to which an E&E asset is allocated to be larger than a segment determined in accordance with IFRS 8. General Feedback: Learning objective 35.6: explain how impairment applies to exploration and evaluation assets. 21. E&E assets are required to be tested for impairment: a. at least annually. *b. when there is an indication that the assets may be impaired.

35.7

Chapter 35: Accounting for mineral resources Not for distribution in full. Instructors may assign selected questions in their LMS.

c. prior to reclassification at the end of E&E activities. d. only where commercially feasible reserves are not found through the E&E activities. General Feedback: Learning objective 35.6: explain how impairment applies to exploration and evaluation assets. 22. AASB 6/IFRS 6 Exploration for and Evaluation of Mineral Resources states that exploration and evaluation costs of a mining operation ____________________________________. *a. can be recognised as an expense or capitalised as an asset depending on the circumstances of the particular operation. b. must be accounted for in accordance with AASB 116/IAS 16 Property, Plant and Equipment. c. must be recognised as an expense as they are incurred. d. must be carried forward as an asset until production commences. General Feedback: Learning objective 35.7: demonstrate understanding of the classification requirements of AASB 6/IFRS 6 and industry practices. 23. Outback mining Ltd paid $3 million for a mineral deposit and spent a further $225,000 in developing the property prior to commencing production on 1 July 2022. It is estimated that the deposit will produce 25 million tonnes of ore. In addition to the development costs, Outback spent another $500,000 on infrastructure construction at the mine site. Its mining operations during the year ended 30 June 2023 resulted in: Tonnes of ore mined 1,000,000 Tones of ore sold 900,000 The amount to be charged as amortisation of pre-production costs for the year ending 30 June 2023 is _______________. a. 120,120 b. 155,208 c. 154,564 *d. 149,000 General Feedback: Learning objective 35.7: demonstrate understanding of the classification requirements of AASB 6/IFRS 6 and industry practices. Feedback: Depreciation/amortisation for the period = Current period's production x (Net book value of the asset at the beginning/Opening reserves estimated at the beginning) Book value of asset = 3,000,000 + 225,000 + 500,000 = 3,725,000 = 1,000,000 * (3,725,000/25,000,000) = 149,000 24. Which of the following E&E costs would be classified as intangibles? I. Drilling rights.

35.8

Testbank to accompany Financial reporting 4e by Loftus et al.

II. Exploration licenses. III. Equipment inspection costs. IV. Capitalised consumable costs. *a. I, II and IV. b. I, II and III. c. I, III and IV. d. II, III and IV. General Feedback: Learning objective 35.8: apply the disclosure requirements of AASB 6/IFRS 6. 25. AASB 6/IFRS 6 requires disclosure of which of the following? *a. Accounting policies relating to E&E assets. b. Impairment write-downs made on E&E assets. c. Financing cash flows relating to E&E activities. d. Accounting policies relating to pre-exploration costs. General Feedback: Learning objective 35.8: apply the disclosure requirements of AASB 6/IFRS 6. 26. The IFRS Interpretations Committee issued an interpretation in relation to the accounting for surface mine stripping costs (i.e. removal of rocks, soil and other waste materials to access the relevant mineral deposits) incurred during the production phase. The interpretation proposes: a. this asset would be referred to as a stripping activity asset ('the asset'). b. the asset would initially be recognised at cost plus directly attributable overhead costs. c. waste removal (stripping) costs would be capitalised during the production phase of a surface mine, if certain criteria are met. *d. all of the options are correct. General Feedback: Learning objective 35.9: discuss the possible future developments related to accounting for the extractive industries. 27. Which of the following is not within the scope of the IASB extractive activities project? a. The definition of reserves and resources. b. Disclosure requirements for reserves and resources. c. Measurement of reserves and resources on initial recognition as an asset.

35.9

Chapter 35: Accounting for mineral resources Not for distribution in full. Instructors may assign selected questions in their LMS.

*d. Whether to expense or capitalise costs recognised after recognition of reserves and resources as assets. General Feedback: Learning objective 35.9: discuss the possible future developments related to accounting for the extractive industries.

35.10

Chapter 36: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

Chapter 36: Agriculture Multiple choice questions 1. Which of the following are reasons why the IASC felt that agriculture was an industry that needed its own industry specific standard? I. Agriculture was considered to be an emerging industry at that time. II. The specific exclusion of assets related to agricultural activity from other standards. III. The nature of agricultural activity had created uncertainty or conflicts when applying traditional accounting models. IV. Accounting guidelines for agricultural activity previously developed by national standard setters had been piecemeal. a. I, II and III b. I, III and IV *c. II, III and IV d. III and IV only General Feedback: Learning objective 36.1: explain the background to the development of AASB 141/IAS 41. 2. Which standard was issued in 2011 that amended AASB 141/IAS 41? *a. AASB 13 Fair Value Measurement b. AASB 101 Presentation of Financial Statements c. AASB 15 Revenue from Contracts with Customers d. AASB 6 Exploration for and Evaluation of Mineral Resources General Feedback: Learning objective 36.1: explain the background to the development of AASB 141/IAS 41. 3. AASB 141/IAS 41 applies to accounting for which of the following when they relate to agricultural activity? I. Biological assets. II. Government grants. III. Agricultural produce. IV. Land related to agricultural activity. a. I, II and IV. *b. I, II and III. c. II, III and IV. d. I, III and IV. General Feedback: © John Wiley and Sons Australia, Ltd 2022

36.2

Testbank to accompany Financial reporting 4e by Loftus et al.

Learning objective 36.2: distinguish between agricultural activities, agricultural produce and biological assets. 4. Each of the following are agricultural activities except for: a. Oyster farming. b. Pearl farming. c. Fish farming. *d. Ocean fishing. General Feedback: Learning objective 36.2: distinguish between agricultural activities, agricultural produce and biological assets. 5. Which of the following meets the definition of agricultural produce? *a. Milk. b. Cheese. c. Yoghurt. d. Dairy cattle. General Feedback: Learning objective 36.2: distinguish between agricultural activities, agricultural produce and biological assets. 6. AASB 141/IAS 41 considers that there are three common features to agricultural diversity. These three features are: I. Capability to change. II. Change transformation. III. Management of change. IV. Measurement of change. a. I, II and III b. I, II and IV *c. I, III and IV d. II, III and IV General Feedback: Learning objective 36.2: distinguish between agricultural activities, agricultural produce and biological assets.

36.3

Chapter 36: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

7. AASB 141/IAS 41 defines an agricultural activity as the management by an entity of the biological transformation and harvest of biological assets: a. for sale; b. into additional biological assets; c. for conversion into agricultural produce. *d. all of the above. General Feedback: Learning objective 36.2: distinguish between agricultural activities, agricultural produce and biological assets. 8. Which of the following is a product resulting from agricultural produce? a. Milk. b. Wool. *c. Sugar. d. Cotton. General Feedback: Learning objective 36.3: explain the different accounting treatments required before and after harvest. 9. Under AASB 141/IAS 41, which of the following is a biological asset? *a. Fruit trees. b. Picked fruit. c. Tinned fruit. d. Processed fruit. General Feedback: Learning objective 36.3: explain the different accounting treatments required before and after harvest. 10. Which of the following statements is incorrect in relation to the treatment of biological assets? a. For the products that are the results of processing after harvest, AASB 102/IAS 2 Inventories or another applicable standard is applied. b. AASB 141/IAS 41 Agriculture applies only to the biological assets and the harvested produce of the biological assets. *c. Processed products after harvest are measured at their fair value at the measurement date. d. Biological assets and its produces are measured at their fair value at the measurement date.

36.4

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 36.3: explain the different accounting treatments required before and after harvest. 11. Which of the following statements is incorrect? a. Biological transformation is facilitated by management. b. Management is a key part of the definition of agricultural activity under AASB 141/IAS 41. c. There is a link between management and control of a biological asset. *d. Management is a key part of the recognition criteria for biological assets and agricultural produce. General Feedback: Learning objective 36.4: explain the recognition criteria for biological assets and agricultural produce. 12. The recognition criteria contained within AASB 141/IAS 41 in relation to recognition of a biological asset or agricultural produce as an asset includes all the following except for: *a. The asset has physical form. b. The fair value or cost can be reliably measured. c. The entity controls the asset as a result of past events. d. It is probable that future economic benefits associated with the asset will flow to the entity. General Feedback: Learning objective 36.4: explain the recognition criteria for biological assets and agricultural produce. 13. According to AASB 141/IAS 41,which of the following is not the criterion of the recognition of a biological asset or agricultural produce? a. The entity obtains the control over the asset as a result of past events. b. It is probable that future economic benefits associated with the asset will flow to the entity. c. The fair value or cost of the asset can be measured reliably. *d. The recognition of the asset provides the users of financial statements with a faithful representation of the asset. General Feedback: Learning objective 36.4: explain the recognition criteria for biological assets and agricultural produce.

36.5

Chapter 36: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

14. AASB 141/IAS 41 requires that biological assets be measured on initial recognition and at the end of each reporting period: a. at fair value less costs to sell. b. at fair value less costs to sell at the point of harvest. c. at fair value less estimated costs to sell at the point of harvest. *d. at fair value less costs to sell, except where the fair value cannot be measured reliably. General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. 15. Which of the following is not a cost to sell? a. Transfer taxes and duties. b. Levies by regulatory agencies. *c. Transport costs to get assets to a market. d. Commissions to brokers and dealers. General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. 16. When determining the fair value of biological assets when there is no market price for that asset in its present condition AASB 141/IAS 41 requires that: a. the entity uses sector benchmarks. b. the entity measures the asset at cost. c. the entity uses the contract prices for recent sales of similar assets adjusted for the effects of biological transformation. *d. the entity uses the present value of expected net cash flows from the asset discounted at a current market-determined rate. General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. 17. Forester Co owned a forest that had an estimated fair value less costs to sell of $9 million. During the financial year ending 30 June 2023, the company harvested part of its holdings. The logs from this harvesting were estimated to have a fair value of $3,605,000 and estimated selling costs of $70,000 in brokerage commission, $35,000 in state government levies and $23,000 in transportation costs to the nearest market. Also, the costs of harvesting the timber were $200,000. How much is the inventory of logs at 30 June 2023?

36.6

Testbank to accompany Financial reporting 4e by Loftus et al.

a. 3,547,000 *b. 3,477,000 c. 3,312,000 d. 3,382,000 General Feedback: Learning objectives 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. Feedback: Costs to sell include transportation cost, sales commission and state government levies. 18. Pure Milk owns dairy cattle. The market value of the cattle is calculated by reference to the litres of milk able to be produced and the lactation rate of the cows. The cattle are regularly sold at auction. Costs incurred to transport the cattle to auction are $3000 per truck. Each truck can transport approximately 100 cattle. Number of mature cows held at 30 June 2023 16 000 Average litres of production per cow 10 000 litres Lactation rate 70% Price per litre 30 cents The market value for each cow at 30 June 2023 is: a. $2000. *b. $2100 c. $3000. d. $3360. General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. Feedback: 10 000L x 70% x $0.30 = $2100 19. The entry required when an animal is born on a pig farm is:

a. *b. c. d.

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Chapter 36: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. 20. At 30 June 2022 the fair value of Green Valley's vineyard is $2.25 million. At 30 June 2023 the following information is available: Fair value of vines prior to harvest at 31 March 2023 $2 400 000 Fair value of grapes harvested at 31 March 2023 $800 000 Estimated costs to sell - grapes $30 000 Estimated costs to sell - vines $40 000 There have been no changes in fair values between 1 April and 30 June 2023. At 30 June 2023, the vines will be recorded in Green Valley's financial statements at an amount of: a. $1 450 000. b. $1 560 000. c. $2 400 000. *d. $1 600 000. General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. Feedback: $2 400 000 - $800 000 21. At 30 June 2022, the fair value of Green Valley's vineyard is $2.25 million. At 30 June 2023, the following information is available: Fair value of vines prior to harvest at 31 March 2023 $2 400 000 Fair value of grapes harvested at 31 March 2023 $800 000 Estimated costs to sell - grapes $30 000 Estimated costs to sell - vines $40 000 There have been no changes in fair values between 1 April and 30 June 2023. The entry to recognise the grapes at the point of harvest is:

a. *b. c.

36.8

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 36.5: analyse the meaning of 'fair value less costs to sell' and apply this measurement basis to biological assets and agricultural produce. 22. Whiting Limited operates a fish farm. AASB 141/IAS 41 requires live immature fish to be valued at: a. either cost or fair value less estimated costs to sell. b. cost due to the absence of an active market for such fish. *c. the fair value less costs to sell based on prices of slaughtered immature fish. d. fair value determined by applying a discount factor to the fair value of live mature fish. General Feedback: Learning objective 36.6: explain the practical implications of measuring these assets at fair value less costs to sell, including interpreting the disclosures made by companies applying the standard. 23. It is common for companies applying AASB 141/IAS 41 to: a. attempt to 'bury' the fair value movements attributable to agricultural assets in 'other expenses'. b. disclose the fair value movements attributable to agricultural assets as part of 'abnormal' items. c. remain silent in the financial statements about the fair value movements attributable to agricultural assets, but highlight such items in 'financial commentaries'. *d. separately disclose the fair value movements attributable to agricultural assets in the statement of profit or loss and other comprehensive income or the notes. General Feedback: Learning objective 36.6: explain the practical implications of measuring these assets at fair value less costs to sell, including interpreting the disclosures made by companies applying the standard. 24. Outback Co received a $360 000 grant from the government on 1 July 2023. One of the conditions attached to the grant was that Outback Co had to continue farming in the same location for the next 3 years; otherwise the grant would have to be returned in full. The entry to record the receipt of the grant on 1 July 2023 is: a. DR Cash $360 000; CR Revenue $360 000 *b. DR Cash $360 000; CR Performance obligation $360 000 c. DR Cash $360 000; CR Revenue $120 000; CR Performance obligation $240 000 d. No entry is required as the grant is conditional and cannot be recognised until the conditions attached to the grant are met. General Feedback: Learning objective 36.7: examine the interaction between AASB 141/IAS 41 and AASB 120/IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

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Chapter 36: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

25. Which of the following statements in relation to government grants is correct? a. Government grants for biological assets measured at cost are accounted for under AASB 41/ IAS41. b. Government grants for biological assets measured at fair value are accounted for under AASB120 / IAS 20. *c. Government grants for biological assets measured at fair value are accounted for under AASB141/IAS 41. d. Government grants for biological assets measured at cost are accounted for under AASB118/IAS18. General Feedback: Learning objective 36.7: examine the interaction between AASB 141/IAS 41 and AASB 120/IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. 26. With regards to land used for agricultural purposes, increases in fair value over cost is recognised in equity when the land is: a. an investment property measured at cost and accounted for under AASB 140/IAS 40. b. an investment property measured at fair value and accounted for under AASB 140/IAS 40. c. not an investment property, is measured at cost and accounted for under AASB 116/IAS 16. *d. not an investment property, is measured at fair value and accounted for under AASB 116/IAS 16. General Feedback: Learning objective 36.8: examine the interaction between AASB 141/IAS 41 and AASB 116/IAS 16 Property, Plant and Equipment and AASB 140/IAS 40 Investment Property. 27. The accounting treatment for land under AASB 116/IAS 16 and AASB 141/IAS 41 differs depending on whether the land is/isn't an investment property. These differences relate to: I. the recording of changes in fair value. II. the initial measurement of the value of the land. III. the subsequent measurement of the value of the land. a. I only b. II only *c. I, II and III d. II and III only General Feedback: Learning objective 36.8: examine the interaction between AASB 141/IAS 41 and AASB 116/IAS 16 Property, Plant and Equipment and AASB 140/IAS 40 Investment Property.

36.10

Testbank to accompany Financial reporting 4e by Loftus et al.

28. Which of the following are required disclosures under AASB 141/IAS 41? I. Fair value changes attributable to price changes. II. Fair value changes attributable to physical changes. III. Aggregate gain or loss on initial recognition of biological assets. IV. Fair value of agricultural produce harvested during the period, at point of harvest. *a. III and IV only. b. I, II and III only. c. II, III and IV only. d. I, II, III and IV. General Feedback: Learning objective 36.9: describe the disclosure requirements of AASB 141/IAS 41. 29. Which of the following is a required disclosure under AASB 141/IAS 41 in relation to government grants? a. Unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted. *b. The nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and significant decreases expected in the level of government grants. c. The nature and extent of grants recognised, unfulfilled conditions attached to the grant and significant increases expected in the level of government grants. d. The nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted. General Feedback: Learning objective 36.9: describe the disclosure requirements of AASB 141/IAS 41. 30. Jersey Co is a company that farms dairy cattle. Jersey Co owns the farmland on which the cattle are located, having purchased it for $3.5 million in 2019. The land is measured at cost under AASB 116/IAS 16. Details of cattle at 30 June 2023 were as follows:

During the year ended 30 June 2024 the following occurred: 400 new cows were purchased at $610 each 76 heifers matured into cows 10 heifers died 600 cows were sold for $650 each © John Wiley and Sons Australia, Ltd 2022

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Chapter 36: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

The price change between a heifer and a cow at the time of maturity during the year was estimated to be $400. The following is relevant at 30 June 2024: The land has been valued at $5 million. Jersey Co has determined that the following are the appropriate values to use for the purposes of transfers and deaths of heifers. Fair value less estimated costs to sell: Cows: $720 / head Heifers: $300 / head The fair value of cows as at 30 June 2024 is: *a. $433 840 b. $430 440 c. $413 000 d. $408 000 General Feedback: Learning objective 36.10: apply the recognition and measurement requirements of AASB 141/IAS 41 to prepare a statement of profit or loss and other comprehensive income and statement of financial position. Feedback: (1400+400+76-600) x $720 = $918 720 31. Jersey Co is a company that farms dairy cattle. Jersey Co owns the farmland on which the cattle are located, having purchased it for $3.5 million in 2021. The land is measured at cost under AASB 116/IAS 16. Details of cattle at 30 June 2023 were as follows:

During the year ended 30 June 2024 the following occurred: 400 new cows were purchased at $610 each 76 heifers matured into cows 10 heifers died 600 cows were sold for $650 each The price change between a heifer and a cow at the time of maturity during the year was estimated to be $400. The following is relevant at 30 June 2024: The land has been valued at $5 million. Jersey Co has determined that the following are the appropriate values to use for the purposes of transfers and deaths of heifers. Fair value less estimated costs to sell: Cows: $720 / head Heifers: $300 / head The increase in fair value of all livestock attributable to price change is: a. $18 000 b. $182 000 *c. $200 000 d. $176 140

36.12

Testbank to accompany Financial reporting 4e by Loftus et al.

General Feedback: Learning objective 36.10: apply the recognition and measurement requirements of AASB 141/IAS 41 to prepare a statement of profit or loss and other comprehensive income and statement of financial position. Feedback: Increase in FV of Cows due to price changes $182 000 (1400 x ($720$590)) + Increase in FV of Heifers due to price changes $18 000 (200 x ($300-$210) = $200 000 32. Which of the following would be disclosed in the statement of financial position as a biological asset under AASB 141/IAS 41? *a. Pigs. b. Picked fruit. c. Wine. d. Grapes. General Feedback: Learning objective 36.10: apply the recognition and measurement requirements of AASB 141/IAS 41 to prepare a statement of profit or loss and other comprehensive income and statement of financial position.

36.13