Questions and Answers of Financial Accounting And Reporting

What is involved in a responsibility reporting system?
What is the main objective of a responsibility report for a cost centre?
What is the difference between direct fixed costs and indirect fixed costs relative to a responsibility report for a profit centre? Which of these costs are called traceable costs and which are
How does contribution margin differ from controllable margin in a responsibility report for a profit centre?
The information below relates to Reynolds Ltd. Use it to prepare a statement of cash flows using the direct method and a reconciliation of profit to cash provided by operating activities.ReasoningThe
Which of the following is not a non-cash activity?(a) Issue of shares to purchase assets.(b) Issue of debt to purchase assets.(c) Payment of cash dividends.(d) Exchange of property, plant and
Which of the following provides a useful comparison with the profit margin?(a) Capital expenditure ratio.(b) Cash return on sales ratio.(c) Cash debt coverage.(d) Current cash debt coverage.
What are property, plant and equipment (PPE) assets? What are the major classes of PPE assets? At what value should PPE assets be recorded?
What are capital expenditures?
What are the two main types of leases?
Why is depreciation an allocation concept rather than a valuation concept?
What is the formula for calculating annual depreciation under the straight-line method?
How do the depreciation methods differ in their effects on annual depreciation over the useful life of an asset?
Are revisions of periodic depreciation made to previous periods? Explain.
What is the difference between an ordinary repair and an addition or improvement? Why is this distinction important to financial reporting?
What is an impairment?
What is a revaluation?
Identify the major types of identifiable intangible assets and the accounting treatment for them.
Explain the accounting for research and development costs.
What is goodwill? Explain the accounting treatment of goodwill.
What is the purpose of knowing the average age of PPE assets? How is this figure calculated?
Corrieten Ltd purchased equipment and these costs were incurred:What amount should be recorded as the cost of the equipment?(a) $$18$ 000.(b) $$19$ 500.(c) $$19$ 200.(d) $$20$ 000. Cash price
Harrington Ltd recently leased a number of trucks from Andre Ltd. In inspecting the books of Harrington Ltd, you notice that the trucks have not been recorded as assets on its statement of financial
Additions to PPE assets:(a) are expenses.(b) increase a Repair expense account.(c) increase a Purchases account.(d) are capital expenditures.
Which of the following measures provides an indication of how efficient an entity is in using its assets?(a) Current ratio.(b) Average useful life.(c) Average age of PPE assets.(d) Asset turnover.
Pierce Ltd incurred $$150$ 000 of research and development costs in its laboratory to develop a new product. It spent $$20$ 000 in legal fees for a patent granted on 2 January 2019. On 31 July
Kant Ltd purchased a truck for $$11$ 000 on 1 January 2018. The truck will have an estimated residual value of $$1000$ at the end of 5 years. If you use the units-of-production method, the
In relation to agricultural assets, indicate which of the following statements is true.(a) The assets include only items purchased in an external transaction.(b) The assets remain as agricultural
In relation to natural resources, indicate which of the following statements is true.(a) The value of the mineral or oil deposit is reflected on the statement of financial position.(b) Similar to
In relation to evaluating non-current assets indicate which of the following statements is true.(a) The older the assets are, the better the company is performing.(b) Too high a depreciation rate
What are some items generally withheld from employees’ wages or salaries?
Identify three examples of revenue received in advance.
What are the advantages of unsecured notes and debentures versus equity financing?
Explain the terms face value, contractual interest rate and market interest rate.
Explain why you would prefer to receive $1 million today rather than 5 years from now.
What entry is made to record the issue of unsecured notes payable of $1 million at 100?
Why are notes issued at a discount? at a premium? at face value?
Explain the accounting for redemption of unsecured notes at maturity and before maturity by payment in cash.
What is the difference between the amount borrowed on a mortgage and the amount repaid?
How is the interest expense calculated on a mortgage for each period?
What is a lease?
List the advantages of leasing.
How is a provision different from other liabilities, such as accounts payable?
Why are contingent liabilities not recognised?
What does the balance of the warranty provision account represent?
Waffle Ltd’s payroll for March 2020 was $$120$ 000. Waffle’s pay week ended on 28 March 2020. The $$120$ 000 payroll includes $$10$ 000 for accrued wages since 28 March. Payroll deductions
Beta Ltd issued 500 $$1000$ unsecured notes at face value, maturing on 30 June 2018. On 30 June 2018, after payment of interest, the unsecured notes were redeemed at 96. Prepare the journal entry
Using the mortgage schedule in figure 9.6, prepare the journal entry to record the mortgage payment on 31 March 2019.Reasoning The difference between the amount borrowed and the amount repaid is
Match each item with a type of liability.ReasoningLiabilities are classified as provisions if there is significant uncertainty about the amount of the future outflows of economic benefits.
Wentworth Watches Ltd manufactures and sells watches with a 2-year warranty. The warranty provision account had a debit of $$2000$ before adjusting entries on 31 December 2018, which is Wentworth
Which of the following is not a current liability?(a) Allowance for doubtful debts.(b) Revenue received in advance.(c) Current portion of long-term debt.(d) Payroll deduction not yet remitted.
Which of the following would not be included in the numerator of the quick ratio?(a) Inventory.(b) Cash.(c) Short-term investments.(d) Accounts receivable.
Amounts deducted from employees’ wages but not yet paid to a third party are recognised as:(a) an asset.(b) an expense.(c) a liability.(d) none of the above; they are not recognised.
An obligation for long service leave payable 6 years from now is recognised as:(a) a contingent liability.(b) a non-current provision.(c) a current provision.(d) none of the above; it is not
Gester Ltd redeems its $$100$ 000 face value debentures at 105 on 31 January, following the payment of half-yearly interest. The carrying amount of the debentures at the redemption date is $$100$
In a recent year Kennedy Ltd had profit after tax of $$150$ 000, interest expense of $$30$ 000, and tax expense of $$20$ 000. What was Kennedy Ltd’s times interest earned for the year?(a)
Adelaide Boats Ltd had current liabilities of $$5$ million, non-current liabilities of $$10$ million and total assets of $$20$ million. What is Adelaide Boats Ltd’s debt to total assets
Which of the following is true with regard to contingent liabilities?(a) Can be measured reliably.(b) Are recognised in the statement of financial position.(c) Are disclosed in the notes to the
Which of the following are considered to be advantages of operating leases for the lessee?(a) Access to a wide variety of non-current assets.(b) Tax deductibility of lease payments.(c) The risk of
Which of the following is not true in relation to leases?(a) An operating lease is where the lessee effectively retains the risks and rewards of owning an asset.(b) An operating lease is where the
The entry to account for the lease payment accrual at the end of the period in the records of the lessee would be:(a) No accrual required, the transaction would be recorded on the date the lease
Assuming the required lease accrual was made at 31 December, the payment of the first lease payment would be recorded as follows in the books of the lessee: (a) Feb. 28 Lease payable 100 Lease
What are the advantages and disadvantages of a company compared with a sole proprietorship and a partnership?
Identify the principal steps in forming a company.
What rights are inherent in owning ordinary shares in a company?
What approaches may a company use to issue new shares to investors?
Distinguish between issue price and market value.
Explain the effect on the accounting equation of ordinary shares issued for cash.
What factors affect the size of a company’s cash dividend?
Why do companies issue share dividends?
How might a share dividend affect future cash dividends?
What is earning power?
What are irregular items and what effect might they have on the estimation of future profits and future cash flows?
What are the differences between the statement of profit or loss, statement of profit or loss and other comprehensive income, and statement of changes in equity?
Identify three items that decrease retained earnings.
What measure can be used to evaluate a company’s dividend record, and how is it calculated?
What factors affect the return on ordinary shareholders’ equity?
Downunder Opals Ltd begins operations on 1 March by issuing 100 000 shares by private placement at $$12$ per share. Journalise the issue of the shares.Reasoning Upon issuing shares at $$12,$
Linda CD Ltd issued 500 000 shares for $$4$ each. After 5 years of record profits, the company had a cash balance of $$1$ 000 000, retained earnings of $$2$ 500 000 and share capital of $$2$
Polar Equip Ltd operates a ski hire business. The company reported retained earnings of $$80$ 000 and a general reserve of $$250$ 000 in its statement of financial position at 30 June 2018.
Which of these statements is false?(a) Ownership of ordinary shares gives the owner a voting right.(b) The equity section begins with share capital (contributed equity).(c) The transfer of shares
A share split has the effect of:(a) increasing the number of shares.(b) increasing the amount of share capital.(c) decreasing the amount of share capital.(d) increasing equity.
Which of these statements about share dividends is true?(a) A credit entry should be made to retained earnings for the dollar amount of the shares issued.(b) A share dividend increases share
Which of the following conditions is necessary for a company to pay cash dividends?(a) Dividends must be paid from retained earnings.(b) The company must pay the cash dividend at least once a
Which of the following is not true in relation to earning power?(a) Earning power is the most likely level of profit to be obtained in the future.(b) Earning power is the extent to which this
Which of the following is not classified as an irregular item?(a) Change in accounting policy.(b) Bad debts expenses.(c) Changes in accounting estimates.(d) Prior period errors.
Which of the following is not part of comprehensive income?(a) Prior period errors.(b) Discontinuing operations.(c) Changes in accounting estimates.(d) Dividends paid.
Retained earnings are:(a) increased by cash dividends declared.(b) increased by all dividends declared.(c) decreased by transfers to reserves.(d) increased by losses after tax.
Which of the following is not an equity account?(a) Share capital.(b) Reserves.(c) Retained earnings.(d) Dividends payable.
Which of the following decreases retained earnings?(a) Share dividends declared.(b) Payment of a cash dividend previously declared.(c) Transfer from reserves.(d) Profit after tax.
A low dividend payout may indicate that the company:(a) generated low levels of profit.(b) paid high dividends.(c) is retaining profit to pursue a growth strategy.(d) has share capital surplus to
A low return on ordinary shareholders’ equity indicates(a) shareholder confidence.(b) low profitability on shareholders’ funds.(c) low return on assets.(d) high leverage.
Duncan Ltd had the following account balances at 30 June 2018: Share capital $$100$ 000, Retained earnings $$30$ 000, General reserve $$8000,$ Dividends payable $$2000,$ and Cash $$12$ 000.
Which of the following increases the dividend payout?(a) An increase in average equity.(b) An increase in profits, while the payout per share remains the same.(c) A decrease in profits, while the
Which of the following directly increases return on ordinary shareholders’ equity?(a) A decrease in average equity.(b) A decrease in profit available to ordinary shareholders.(c) A lower dividend
Which of the decision-making tools would you recommend for a manager choosing between debt finance and issuing shares to raise funds for an investment project?(a) Compare profit before tax for each
What are some examples of significant non-cash activities?
What is the format of the operating activities section of the statement of cash flows using the direct method?
What is the format of the operating activities section of the statement of cash flows using the indirect method?
Why is depreciation expense added to profit in the reconciliation?

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