Questions and Answers of International Accounting

The details in Figure 16.9 relate to D Co. Using that information and appropriate ratios, prepare a financial report on the company.The opening inventory value figures were :135,000 20X1 actual and
The process of expressing a foreign subsidiary’s balance sheet in its parent’s currency is called:A. Currency translation.B. Currency change.C. Currency conversion.D. Currency swap.
A loan is made to a company of $20,000, which is equal to :10,000 at the date of the loan during year 1. The loan is legally denominated in dollars. At the end of year 1, the loan is translated as
Home Inc. (a US company) has a wholly-owned subsidiary, S, which it acquired on 1 January X0. The balance sheets of S as at 1 January X0 and 31 December X0 are as set out in Figure 15.1 in foreign
An entity’s functional currency is:A. The currency of its parent’s country.B. The currency of its own country.C. The currency in which the financial statements are presented.D. The currency of
Under IFRS, unsettled gains on foreign monetary balances in an entity’s balance sheet should be:A. Taken to profit or loss immediately.B. Taken to profit or loss when realized.C. Taken to profit or
Entity X based in one country (currency $) bought goods from Entity Y in another country (currency :) for :300,000 on 1 May 20X1. The spot rate on that date was $1 =:1. As at 31 December 20X1, the
‘The variety of possible methods of foreign currency translation, and the different ways of treating gains arising, show that adequate harmonization for international comparison purposes is a long
The stated accounting policy treatment for foreign currency translation for SKF, a Swedish company, before it adopted IFRS was as follows:Translation of foreign financial statements The current rate
For a company with no preference shares, ‘earnings’ is the:A. Sales figure.B. Profit before tax.C. Profit after tax.D. Profit after tax and after dividends.
One of Hope Ltd’s customers has become insolvent. As a result the amount owed to Hope Ltd has become a ‘bad debt’. Which of the following is the consequence?A. Hope Ltd’s current ratio has
Repeat Exercise 1.4 from Chapter 1. Do you think that users know what to ask for from their accountant or financial adviser?Data from Repeat Exercise 1.4Do you think that users know what to ask for
Saxe-Coburg & Gotha Inc. increased its borrowings in order to buy a non-current asset. The complete effect on the balance sheet would be:A. Increase in assets and an increase in shareholders’
Cross-sectional analysis (comparisons between different businesses over the same period) and trend analysis (comparisons of the same business over different periods) both suffer from significant
‘Financial ratios are only as good as the accounting information from which they are calculated’. Discuss.
Bakshi Ltd has a current ratio of 2.0 and an acid test ratio of 1.0. If some current liabilities are paid off using cash, what would be the effect on these ratios?Current ratio Acid test ratio A.
Under IFRS, income statements are required to show:A. Extraordinary items.B. Unusual items.C. Exceptional items.D. None of the above.
Set out in Figure 16.10 are summarized balance sheets and income statements for F Co. for 20X1 and 20X2. You are required to:Figure 16.10a. prepare a table of ratios, covering all aspects of
‘Earnings’ is calculated deducting:A. Dividends on ordinary shares.B. Dividends on preference shares.C. Tax expense.D. Interest expense.
The ‘per share’ element of the EPS calculation includes:A. All shares.B. The average number of ordinary shares outstanding during the year.C. The number of ordinary shares outstanding at the end
The dividend yield is the:A. Dividends paid per ordinary share.B. The proportion of the return in one year on a share.C. The profit per share.D. The dividend on a share as a proportion of the share
Athens Ltd is a new hairdressing business into which the owner, Mr George, invests €40,000 on 1 January, when business commences. During the first month the following transactions occur:1. Fittings
The best case study of all is probably the real-world situation. This allows you to:■ choose situations that are topical;■ choose countries that you are both knowledgeable about and interested
Beijing Ltd runs a small hotel that commenced trading on 1 March. The following transactions occurred during the month of March:1 March Share capital of €50,000 was invested by the owners who also
The following is the trial balance of Cadiz Ltd as at 31 December.You also know that the inventory at 31 December is €380,000.You are required to:■ prepare an income statement for the year ended
The following balances are taken from the books of Dublin Ltd at 31 December:The inventory at 31 December is €500,000.You are required to:■ prepare an income statement for the year ended 31
Electricity bills amounting to €4,500 were paid by Edinburgh Ltd during the year ended 31 December 20X7. All of these bills relate to the year ended 31 December 20X7. A bill of:1,500 was received
Geneva Ltd has a year end of 30 June for its financial statements. You are provided with the following information relating to rent payable:You are required to:■ calculate the amount that should be
The financial year end for Florence Ltd is 31 December 20X7. Calculate the amount charged to the income statement and the balance outstanding (for the balance sheet) in respect of the following
The following income statement and balance sheet have been prepared for Joburg Co.After the accounts were prepared, the following information became available.1. Interest payable on the long-term
The trial balance of Mumbai Co. at 31 December was as follows:The following information is applicable.(a) Inventory on 31 December is €850,000.(b) The cumulative allowance for doubtful debts is to
Hobart Co. purchases a truck on 1 July 20X7 for €200,000. The truck should last for five years and then could be sold for €40,000. The financial statements are made up to the year ended 31
Kiev Co. purchases a machine on 1 January 20X0 for €240,000. Depreciation is charged at 10 per cent on cost. On 30 June 20X4, the machine is sold for €120,000 and the proceeds used to buy a new
Nairobi Co. has an authorized share capital of 500,000 ordinary shares of €1 each. The following trial balance was extracted from the accounts as at 31 December 20X7.The following matters are to be
The trial balance for Oslo Co. on 31 July 20X7 is given below.The following additional information is relevant.1. Closing inventory is valued at €180,000.2. An allowance for doubtful debts is to be
The trial balance of Penang Co. on 31 July 20X7 was as follows.The following additional information is available:1. Inventory at 31 July 20X6 is valued at €1,361,000.2. Depreciation for the year is
The trial balance of Shanghai Co. on 31 March 20X7 is given below.The following information is also relevant:1. Closing inventory is valued at €133m.2. Electricity accrued is estimated to be
‘Expenses and revenues are subjective; cash flows are facts. Therefore cash flow statements cannot mislead’. Discuss.
Study Figure 13.6. Write a short report on Bayer’s management of its cash flows over the period reported. Figure 13.6 Bayer Group's consolidated statement of cash flows Income after taxes Income
Repeat Exercise 13.3, but this time work on the assumption that non-current assets that had originally cost :30,000, with accumulated depreciation of :12,000, had been sold during the year ended 31
The balance sheet of Dot Co. for the year ended 31 December 20X2, together with comparative figures for the previous year, is shown in Figure 13.7 (all figures :000).You are informed that there were
Under IFRS, a group is a set of entities that the parent:A. Significantly influences.B. Owns a majority of the voting power in.C. Jointly controls.D. Controls.
Under IFRS, a subsidiary is:A. An entity controlled.B. A company controlled.C. A company significantly influenced.D. An entity significantly influenced.
Under IFRS 10, control over an entity means:A. Power to govern its financial and operating policies.B. The right to appoint the majority of its Board members.C. Power to affect the variable returns
Non-controlling interests are:A. Investments in entities that are not subsidiaries.B. Investments in entities that are neither controlled nor significantly influenced.C. The proportions of
The equity method of accounting brings into the ‘cash’ and ‘sales’ lines of an investor’s financial statements:A. 100 per cent of an investee’s cash and sales.B. The investor’s
IFRS 3 requires goodwill on consolidation to be treated as follows:A. Written off against reserves.B. Amortized over useful life.C. Amortized over 20 years.D. Annually tested for impairment.
Under IFRS 3, a business combination must be accounted for:A. Usually as a purchase.B. As a purchase unless it can be proved that a merger/pooling has taken place.C. As a purchase.D. As a
Under IFRS, significant influence over an investee is presumed to exist only when an investor has:A. The power to govern the financial and operating policies.B. Ownership of 20 per cent or more of
The equity method involves valuing an interest in an entity:A. At stock market value.B. At lower of cost and market value.C. At proportion of net assets.D. At cost plus dividends received.
Explain the concepts of:a. subsidiary;b. joint venture;c. associate;d. an investment that is none of the above.Outline and discuss the usual approaches to the accounting treatment in each case in
A Co. owns 75 per cent of the shares in B Co., bought when the reserves of B were :200,000. The individual balance sheets of A and B as at 30 June 20X8 are given in Table 14.10. During the year, B
The balance sheets of A and B as at 31 December 20X7 are as shown in Figure 14.8.In addition:a. A had acquired 37,500 shares in B in 20X3 when there was a debit balance on the reserves of :3,000.b.
a. How would you define goodwill?b. Three possible accounting treatments of goodwill are:i. retain goodwill as an asset to be amortized over its estimated useful life;ii. retain goodwill as an asset
Which of the following are not foreseen as users of an entity’s financial accounting:A. Managers of the entity.B. Shareholders of the entity.C. Bankers to the entity.D. Unpaid suppliers to the
According to the IASB, the main purpose of financial reporting is to enable:A. The calculation of taxable income.B. Decisions by investors.C. Decisions by managers.D. Control by governments.
Which one of the following is correct?A. All partnerships have limited liability.B. Some partnerships have limited liability.C. Partnerships never have limited liability.
Which one of the following is correct?A. All public companies have limited liability.B. Some public companies have limited liability.C. Public companies never have limited liability.
The IASB is:A. Controlled by the accountancy professional bodies.B. Controlled by governments.C. Controlled by stock exchanges.D. Part of an independent private-sector foundation.
The terminology used by the IASB is:A. The same as US terminology.B. The same as UK terminology.C. Entirely different from US and UK terminology.D. A mixture of US, UK and special IASB terms.
Is financial accounting really necessary?
At least eight different groups of users of accounting information can be distinguished:■ Managers■ Investors■ Lenders■ Employees■ Suppliers and other creditors■ Customers■ Governments
Do you think that users know what to ask for from their accountants or financial advisers?Explain your answer.
In the context of your own national background, rank the seven ‘external’ user groups suggested in the text (i.e. omitting managers), in order of the priority that you think should be given to
If at all possible, compare your answer to Exercise 1.5 with the answers of students from different national backgrounds. Try to explore likely causes of any major differences that emerge, in terms
Explain the various possible advantages that a number of sole traders might obtain by joining together as a partnership.
Explain the various advantages and disadvantages of moving to a corporate form of business instead of operating as a partnership.
A company buys inventory for €1,000, on defined terms for later payment. The effect is to:A. Increase total assets and increase total ownership claims.B. Leave total assets and total claims
The same company as in Question 2a then sells half the inventory for €1,200, received immediately in cash. The effect is to:A. Increase total assets and increase total ownership claims.B. Leave
A balance sheet (statement of financial position) shows:A. The assets used during the period.B. The assets available for use in the next period.C. The cash generated in the period.D. The total assets
Which of the following is correct?A. A balance sheet shows stocks and an income statement shows flows.B. A balance sheet shows flows and an income statement shows stocks.C. A balance sheet shows
Which one of the following is NOT correct?A. Assets - Liabilities = Owner’s equity B. Assets + Expenses = Owner’s equity brought forward + Income + Liabilities.C. Assets + Expenses = Owner’s
The information in Table 2.22 relates to entity F, which started business on 1 January 20X1 when €150,000 was paid in as capital.(a) Convert this information into balance sheets at the end of the
Company G has a hardware business. The balance sheet at the beginning of the financial year showed the position in Table 2.23.Show the adjustments, in the columns provided, for each of the following
The above information has been taken from the company’s books as at 31 December 20X1, but the following have not yet been allowed for.(a) Rent owing but not yet paid amounting to €1,000.(b)
The information has been taken from the company’s books as at 31 December 20X1, but the following has not been allowed for.(a) Inventory at the end of the year is €25,000.(b) Audit fees owing
This information has been taken from the company’s books as at 31 December 20X1, but the information below has not been allowed for.(a) Inventory at 31 December 20X1 is €20,000.(b) Plant and
The IASB’s conceptual framework is loosely based on the earlier framework of:A. The US standard-setter.B. The European Union.C. The UK standard-setter.D. The Chinese standard-setter.
On the issue of ‘going concern’ in the context of IAS 1:A. Entities must be assumed to last no longer than 12 months.B. Entities can be assumed to last for 12 months, but accountants must not
The accrual basis is that:A. Cash transactions should not be accounted for.B. Only cash transactions should be accounted for.C. Income and expenses should be accounted for as cash inflows and
The two key qualities of accounting information are (according to the IASB):A. Prudence and verifiability.B. Representational faithfulness and reliability.C. Representational faithfulness and
The overall objective of IFRS financial statements is to:A. Comply with the law.B. Be accurate.C. Give the most optimistic view of the entity.D. Give a fair presentation.
(a) Which accounting conventions/concepts do you regard as most important in helping preparers and auditors of financial statements to do their work and why?(b) Which accounting conventions do you
‘Substance over form is a recipe for failing to achieve comparability between accounting statements for different businesses’. Discuss.
What various purposes might there be for accounting? Which does the IASB focus particularly on?
Equity investors are major users of financial statements. Identify the general nature of the ‘information needs’ of this group of users. Describe the likely specific uses of company financial
To what extent is the search for relevance of financial information hampered by the need for reliability?
On 21 December 20X7, your client paid €10,000 for an advertising campaign. The advertisements will be heard on local radio stations between 1 January and 31 January 20X8. Your client believes that,
Which one of the following is correct?A. France and Germany have compulsory charts of accounts.B. France has a compulsory chart of accounts but Germany does not have a compulsory chart of accounts.C.
‘Generally accepted accounting principles’ (GAAP) means:A. A set of unwritten principles based on company practices.B. The content of laws on accounting, as imposed by government regulatory
Which one of the following is correct about monitoring and enforcement of IFRS?A. The IASB has a monitoring and enforcement unit.B. It is a national issue.C. The United Nations controls this.D. There
In the EU, which one of the following is correct for financial reporting by unlisted individual companies?A. It must use IFRS.B. It must use EU-adopted IFRS.C. The position varies by country.D. It
Do you think Roman law or common law provides a better context in which financial reporting can achieve its objectives? Explain the reasons for your choice.
What are the advantages and disadvantages of making accounting rules by law as opposed to private-sector standards?
Contrast the degree to which the state is involved in the regulation of accounting in Germany, the United Kingdom, the United States and (if not one of those three) your own country.
Who is supposed to obey accounting standards in the United States? Are they followed in practice?
Which of the following is valid for unconsolidated reporting under national accounting rules?A. The influence of tax rules on financial reports is strong in Germany and weak in the UK.B. The
Which of the following is valid?A. Debt finance and Roman law seem to be positively related.B. Debt finance and Roman law seem to be negatively related.C. Debt finance and common law seem to be
The contents of IFRS consolidated annual financial statements will generally be closely linked to taxation rules when the parent is based in a ‘common law’ country.A. True.B. False.
The contents of IFRS consolidated annual financial statements will generally be closely linked to taxation rules when the parent is based in a ‘code law’ country.A. True.B. False.

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