Questions and Answers of Financial Accounting And Reporting

What are some of the tasks of forensic accountants?
The principles of internal control do not include:(a) establishment of responsibility.(b) documentation procedures.(c) external auditors.(d) independent internal verification.
Explain how financial data is transformed into financial statements.
Which of the following is the correct sequence in transforming transactions into financial statements?(a) Ledgers, journals, trial balance, financial statements.(b) Journals, ledgers, trial balance,
Which of the following is incorrect concerning subsidiary ledgers?(a) The purchases ledger is a common subsidiary ledger for creditor accounts.(b) The accounts receivable subsidiary ledger is a
Describe the purchases and payments cycle.
Which of the following is not an advantage of subsidiary ledgers?(a) They allow a segregation of duties in posting.(b) They result in too much detail in the general ledger.(c) They can provide all
When special journals are used:(a) all purchase transactions are recorded in the purchases journal.(b) all cash received, except from cash sales, is recorded in the cash receipts journal.(c) all
Explain the relationship between a control account in the general ledger and its corresponding subsidiary ledger.
Postings from the purchases journal to the subsidiary ledger are generally made:(a) yearly.(b) monthly.(c) weekly.(d) daily.
What types of special journals are used to record transactions? Why are special journals used?
Which of the following is correct in relation to computerised accounting systems?(a) They are based on the framework of a manual accounting system.(b) Accounting transactions are entered
Explain how special journals are posted.
Which of the following are advantages of computerised accounting systems?(a) Ability to process numerous transactions quickly.(b) Built-in automatic posting of transactions.(c) Error reduction.(d)
The use of special journals has several advantages. Discuss this statement.
Which of the following are not disadvantages of computerised accounting systems?(a) Incompatible hardware and software.(b) Computer viruses and hackers.(c) Error reduction.(d) Loss of data due to
Explain how transactions recorded in the sales journal and the cash receipts journal are posted.
A cash receipts journal is used for: Credit sales Cash sales Discount allowed (a) yes no (b) (c) yes (d) yes yes no yes yes yes
Indicate the types of transactions that are recorded in the general journal when special journals are used.
Which statement is incorrect regarding the general journal?(a) Only transactions that cannot be entered in a special journal are recorded in the general journal.(b) Transactions are initially posted
Which of the following statements is correct?(a) The ‘Discount allowed’ column is included in the cash receipts journal.(b) The purchases journal records all purchases of inventory whether for
Which of the following is incorrect concerning the posting of the cash receipts journal?(a) The total of the ‘Other accounts’ column is not posted.(b) All column totals except the total for the
What are generally accepted accounting principles (GAAP)?
The steps, in order, in the decision-making process are(a) identify issue, analyse information, gather information, identify decision-making tool, evaluate results; make a decision.(b) gather
Describe the concepts, principles and constraints underlying financial statements.
Accounting is the process of:(a) recognising, measuring, recording and communicating.(b) identifying, measuring, recording and communicating.(c) identifying, recording, classifying and
Describe the financial reporting environment.Indicate whether each statement is true or false.(a) Accounting standards are set by the Financial Reporting Council.(b) The ASX Listing Rules are only
Explain the two main qualitative characteristics of information in general purpose financial reports.
Which of the following is not a typical accountant’s role?(a) A financial controller.(b) A marketing manager.(c) An auditor.(d) All of the above are roles of an accountant.
Identify users of accounting financial reports and describe their information needs. Match each of the following types of evaluation with one of the listed users of accounting information.1. Trying
What are the three ways that ratios can be expressed?
Which is not one of the three main forms of business organisation?(a) Sole proprietorship.(b) Unincorporated trust.(c) Partnership.(d) Company.
Prepare a statement of financial position. In alphabetical order below are items for ABC Pty Ltd at 31 December 2018. Prepare a statement of financial position following the format of figure 1.6.
What is the purpose of profitability ratios? Explain the return on assets and the profit margin ratios and how they inform the decisions that users make about resource allocations.
Which is an advantage of companies relative to partnerships and sole proprietorships from the perspective of owners?(a) Separation of ownership and control.(b) Harder to transfer ownership.(c)
Determine the proper financial statement.Indicate which statement you would examine to find each of the following items: statement of financial position (SFP), statement of profit or loss (P/L) or
What is liquidity? How can it be measured using a classified statement of financial position?
Which is not an indicator that the entity is a reporting entity?(a) Separation of ownership from management.(b) It has substantial borrowings.(c) It trades overseas.(d) It is economically important.
What is solvency? How can it be measured using(a) a statement of financial position?(b) a statement of cash flows?
Which of the following statements concerning general purpose financial reports is correct?(a) General purpose financial reports are more detailed than the internal reports.(b) General purpose
What information does the statement of cash flows provide that is not available in an income statement or statement of financial position?
Which is not one of the three main business activities?(a) Financing.(b) Operating.(c) Advertising.(d) Investing.
Which statement about users of accounting information is incorrect?(a) Management is considered an internal user.(b) Taxing authorities are considered external users.(c) Present creditors are
Profit will result when:(a) assets exceed liabilities.(b) assets exceed revenues.(c) expenses exceed revenues.(d) revenues exceed expenses.
Which financial statement reports assets, liabilities and equity?(a) Statement of changes in equity.(b) Statement of profit or loss.(c) Statement of financial position.(d) Statement of cash flows.
The amount of retained earnings is not affected by:(a) profit.(b) loss.(c) the issue of shares.(d) dividends.
In a classified statement of financial position, assets are usually classified as:(a) current assets and cash.(b) current assets, non-current assets and equity.(c) current assets and non-current
As of 31 December 2018, Smithers Pty Ltd has assets of $$7500$ and equity of $$3000.$ What are the liabilities for Smithers Pty Ltd as of 31 December 2018?(a) $$10$ 500.(b) $$4500$.(c)
The AASB is overseen by:(a) ASIC.(b) the IASB.(c) the FRC.(d) the ASX.
What organisation issues Australian accounting standards?(a) Australian Accounting Standards Board.(b) External Reporting Board.(c) Australian Securities and Investments Commission.(d) None of the
What organisation issues New Zealand accounting standards?(a) New Zealand Institute of Chartered Accountants.(b) New Zealand Inland Revenue.(c) External Reporting Board.(d) None of the above.
Which of the following is a main qualitative characteristic of information reported in financial statements in accordance with the Conceptual Framework?(a) Comparability.(b) Understandability.(c)
Valuing assets at their market value rather than at their cost is inconsistent with the:(a) accounting period concept(b) accounting entity concept.(c) cost principle.(d) All of the above.
Which is not an indicator of profitability?(a) Current ratio.(b) Profit margin.(c) Profit.(d) Return on assets.
For 2019 Carman Ltd reported profit $$48$ 000; net sales $$400$ 000; and average assets $$800$ 000. What was the 2019 profit margin?(a) 6%.(b) 12%.(c) 40%.(d) 200%.
Which of these measures is an evaluation of an entity’s ability to pay current liabilities?(a) Profit margin.(b) Current ratio.(c) Both (a) and (b).(d) None of the above.
The result of including goodwill by valuing the non-controlling shares at their market price using Method 2 is to value the non-controlling shares on a different basis to valuing an equity investment
The statements of profit or loss for Continent plc, Island Ltd and River Ltd for the year ended 31 December 2022 were as follows: Continent plc acquired 80% of Island Ltd for €27,500 on 1 January
Explain: (i) basic earnings per share; (ii) diluted earnings per share; (iii) potential ordinary shares; and (iv) limitation of EPS as a performance measure.
The following note appeared in the 2013 Annual Report of Mercer International Inc.:The calculation of diluted net income (loss) per share attributable to common shareholders does not assume the
Alpha plc had an issued share capital of 2,000,000 ordinary shares at 1 January 2021. The nominal value was 25p and the market value £1 per share. On 30 September 2021 the company made a rights
You ascertain that inventories and (to a lesser extent) trade receivables have risen significantly when you consider that sales have increased by only 5%. Discuss the questions that you ask and the
(a) Access the annual report of a company that reports EBITDA and explain how it is used within the report.(b) Access the annual report of a competitor in the same sector and compare their use of
Investors want a better understanding of how boards identify and manage risk to protect the sustainability of companies. By reference to the FRC’s Financial Reporting Lab, identify one good
The Big 4 audit firms have had their professional competence found to be lacking on various audits. Critically discuss the measures that have been taken to avoid a reoccurrence.
It has been suggested that there would be less of an expectation gap if there were to be a note to the accounts giving in relation to those assets and liabilities which involved estimates, the range
Carillion, the UK’s second-largest construction company, collapsed under a debt pile of£1.5bn on 15 January 2018.What are the wider implications of the Carillion collapse for the accounting
Refer to the FRC publication Developments in Audit 2020 and explain what it is proposed to achieve by undertaking a Root Cause Analysis (RCA) review.
Manufacturing Co. has been negotiating with Imran Elina regarding the sale of some property that represented an old manufacturing site which is now surplus to requirements. Because part of the site
There is a view that professional ethics should pervade the teaching of accounting.Discuss how this can be achieved on an undergraduate accounting degree.
The Greenpeace Report issued in 2020, ‘UNPACKED: How supermarkets can cut plastic packaging in half by 2025’, suggested that:GOVERNMENT SHOULD:● Set legally binding targets in the Environment
Give four examples of inter-company income and expense transactions that will need to be eliminated on consolidation and explain why each is necessary.
Cash is being used less frequently to settle debts. Technological developments and environmental impacts have resulted in the way in which payment is made for goods and services changing. Many retail
Sasha Parker is going to set up a new business on 1 January 2021. She estimates that her first six months in business will be as follows:(i) She will put £150,000 into a bank account for the firm
Carli Wainer is going to set up a new business in Bruges on 1 January 2021. She estimates that her first six months in business will be as follows:(i) She will put €150,000 into the firm on 1
Explain the effect on income and financial position if (a) the amount of accrued expense were to be underestimated and (b) the inventory at the year-end omitted inventory held in a customs warehouse
Classify the following items into cost of sales, distribution costs, administrative expenses, other operating income or items to be disclosed after trading profit:(a) Personnel department costs(b)
Discuss the major benefit to an investor from the UK Strategic Report.
The following are three KPIs for the retail sector: capital expenditure, expected return on new stores and customer satisfaction. Discuss two further KPIs that might be significant.
Explain the difference between accounting policies, accounting estimates and prior period errors and how each affects the financial statements.
Evaluate the extent to which the proposed changes to IAS 1 are likely improve the decision-usefulness of published financial statements for users.
The following trial balance was extracted from the books of Old NV on 31 December 2021. (a) Provide for: (i) An audit fee of €38,000. (ii) Depreciation of plant at 20% straight-line. (iii)
A research report7 found that users were worried about the lack of comparability among segment-al disclosures of different companies following the issue of IFRS 8. Discuss:(a) why it should have
Discuss how transactions with related parties can have(a) a beneficial impact(b) a prejudicial impact
IAS 10 deals with events after the reporting period. Required:(a) Define the period covered by IAS 10.(b) Explain when the financial statements should be adjusted.(c) Why should non-adjusting
Direct plc provided the following information from its records for the year ended 30 September 2019: Required:Using the direct method of presentation, prepare the cash flows from the operating
Retail plc had a portfolio linked to retail properties. Discuss the information that would be required if Level 1 and Level 2 inputs were unavailable. Explain the judgements that would be required.
The finance director of Toy plc has been asked by a shareholder to explain items that appear in the current cost statement of profit or loss for the year ended 31.8.2019 and the statement of
Discuss how the Corporate Reporting Review team plans its activities.
During the dot-com boom two major companies with excess data transmission lines in different areas arranged a sale whereby company X transferred lines in city A to company Y which in return
The traditional method for recognising revenue made no allowance for possible bad debts. The first (2010) exposure draft reduced the amount of revenue by the estimated amount of bad debts. In the
Excess dividend payments would be avoided if:● companies were required to disclose the audited figure for available reserves and distributable profits in their annual report and accounts;●
The draft statement of financial position of Telin plc at 30 September 2021 was as follows:Preference shares of the company were originally issued at a premium of 2p per share. The directors of the
The Notes in the BG Group 2015 Annual Report included the following extract:Explain why the provision has been increased in 2014 and 2015 by the unwinding of discount and why these increases are for
Explain how a gain or loss on a forward contract is dealt with in the accounts if the contract is entered into before the period-end but does not close out until post year-end.
Donna, Inc. operates a defined benefit pension scheme for staff. The pension scheme has been operating for a number of years but not following IAS 19. The finance director is unsure of which
The following information (in £m) relates to the defined benefit scheme of Basil plc for the year ended 31 December 2021: Fair value of plan assets at 1 January 2021 £3,150 and at 31 December 2021
On 1 January 2021, Grabbit plc entered into an agreement to lease a widgeting machine for general use in the business. The agreement, which may not be terminated by either party to it, runs for seven
The 2019 Annual Report of Bayer AG states: Interests in subsidiaries, joint ventures and associates that do not have a material impact on the Group’s financial position or results of operations,
An accounting policy states that all inter-company transactions, receivables, liabilities and unrealised profits, as well as intra-group profit distributions, are eliminated.(a) Discuss three

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