Profit or Loss and Equity – Test Bank | 9th

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Chapter 16 Testbank

1. By focusing only on the income statement, we do not obtain a full picture of all the gains and losses that may have occurred for an entity during the period.

True   False

2. As part of the process of international harmonisation, standard-setters have removed the need for professional judgement to be exercised in respect of expenses; any discretion that once existed has been removed.

True   False

3. Research by Brown and Sivakumar (2003) has indicated that the alternative measures of financial performance, which organisations often refer to as 'underlying profit', 'underlying earnings', 'cash earnings' or 'underlying profit after tax' (CAANZ 2016), can potentially provide more accurate predictions of future earnings for investors.

True   False

4. The abbreviation for GAAP is Generally Accepted Accounting Principles.

True   False

5. Within Australia, large proprietary companies and public companies (as well as other forms of 'disclosing entities' and some government departments) are required to comply with accounting standards. This means that the financial statements shall present a measure of profits or losses and other comprehensive income that has been determined by applying accounting standards.

True   False

6. Which of the following are examples of the classification of expenses by their nature?

A. Employee expenses and distribution expenses

B. Depreciation and marketing expenses

C. Borrowing costs and distribution expenses

D. Employee benefits and depreciation expenses

7. Extraordinary items will be included in the statement of profit or loss and other comprehensive income:

A. when they are material and need to be disclosed separately

B. when an item of revenue or expense is attributable to an event outside the ordinary course of business

C. when an expense or revenue is of a non-recurring nature

D. None of the given answers are correct.

8. Where a change in accounting estimates occurs, which of the following should be disclosed?

A. The fact that the amount of the effect on future periods will not be disclosed because estimating that amount is impracticable

B. The reason for the change and comparative data to show the effect with and without the change

C. The nature of the change and the impact on previous income statements

D. The fact that the amount of the effect on future periods will not be disclosed because estimating that amount is impracticable and the reason for the change and comparative data to show the impact with and without the change

9. A statement of profit or loss and other comprehensive income that includes revenue, other income, employee benefits and costs, and motor vehicle expenses would have been prepared using the:

A. nature of expense method

B. narrative method

C. revenues and gains approach

D. function of expense approach

10. When selecting a presentation format for the statement of profit or loss and other comprehensive income, management must select the one that is:

A. most relevant

B. most reliable

C. most consistent

D. most relevant and the most reliable

11. The problem with a 'blanket rule' requiring all expenditure of a particular type to be written off as incurred (e.g. expenditure on research) is that:

A. it is too much like US GAAP

B. it does not enable readers of financial statements to differentiate between entities that have generated future economic benefits from particular activities and entities that have not

C. it does not enable readers of financial reports to differentiate between entities that have managed their earnings and those that have not

D. it does not enable readers of financial reports to differentiate between entities that are going to continue to be successful and those that are not

12. When items of income and expense are material, and their nature and amount are separately disclosed, this could indicate the existence of:

A. an extraordinary item

B. an abnormal item

C. an adjusting item

D. an unusual item

13. Paragraph 98 of AASB 101 lists some circumstances that may give rise to separate disclosure of items of income and expense. They include:

A. reversals of inventory write-downs

B. extraordinary items

C. finance costs

D. distribution costs

14. Components of 'other comprehensive income' would include:

A. net profit reported in the statement of profit or loss and other comprehensive income

B. net operating cash flows reported on the statement of cash flows

C. changes in revaluation surplus

D. net operating cash flows reported on the statement of cash flows, plus the total of all income and expenses recognised directly in equity

15. Changes in accounting estimates include:

A. changes in expected warranty costs on goods sold under guarantee

B. changes in the expected pattern of consumption of economic benefits of depreciable assets

C. changes in the provision for inventory obsolescence

D. All of the given answers are correct.

16. According to AASB 101, 'reclassification adjustment' is defined as amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the ____________.

A. current or previous periods

B. current period

C. previous period

D. None of the given answers are correct.

17. A review of the financial statements of reporting entities will typically show that the statement of profit or loss and other comprehensive income includes amounts attributed to which of the following?

A. Classification adjustments

B. Reclassification adjustments

C. No adjustments

D. None of the given answers are correct.

18. The role of the statement of changes in equity is to provide:

A. a reconciliation of opening and closing equity

B. details of the various equity accounts that are impacted by the period's total comprehensive income

C. information about the effects of transactions with owners in their capacity as owners

D. All of the given answers are correct.

19. In relation to what is to be presented in the statement of changes in equity, paragraph 106 of AASB 101 requires: 'An entity shall present a statement of changes in equity as required by paragraph 10'. The statement of changes in equity includes which of the following information?

A. Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests

B. For each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with AASB 108

C. For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately (as a minimum) disclosing changes resulting from profit or loss, other comprehensive income and transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control

D. All of the given answers are correct.

20. AASB 138 Intangible Assets requires the disclosure of various items of expenses as they relate to intangible assets, including:

A. impairment losses recognised in profit or loss during the period

B. impairment losses reversed in profit or loss during the period

C. any amortisation recognised during the period

D. All of the given answers are correct.

21. In relation to inventories, AASB 102 Inventories requires the disclosure of which of the following?

A. The amount of inventories recognised as an expense in the period (relating to inventories that are sold)

B. The amount of any write-down of inventories recognised as an expense in the period

C. The amount of any reversals of any write-downs

D. All of the given answers are correct.

22. The objective of the disclosure requirements is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective, an entity shall disclose qualitative and quantitative information about:

A. its contracts with customers

B. the significant judgements, and changes in the judgements, made in applying this Standard to those contracts (paragraphs 123–126)

C. any assets recognised from the costs to obtain or fulfil a contract with a customer in accordance with AASB 15

D. All of the given answers are correct.

23. Paragraph 54 of AASB 138 Intangible Assets stipulates that: 'No intangible asset arising from research (or from the research phase of an internal project) shall be recognised.' Expenditure on research (or on the research phase of an internal project) shall be recognised as:

A. income

B. expense

C. profit

D. None of the given answers are correct.

24. Which of the following standards requires entities to recognise all items of income and expense that arise in a period in profit or loss unless a particular accounting standard requires or permits otherwise?

A. AASB 101

B. AASB 108

C. AASB 138

D. None of the given answers are correct.

25. Total comprehensive income is:

A. profit or loss after tax

B. other comprehensive income after tax

C. profit or loss after tax + other comprehensive income after tax

D. None of the given answers are correct.

26. According to AASB 101, paragraph 7, components of 'other comprehensive income' would include:

A. changes in revaluation surplus (see AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets)

B. remeasurements of defined benefit plans (see AASB 119 Employee Benefits)

C. gains and losses arising from translating the financial statements of a foreign operation

D. All of the given answers are correct.

27. Which of the following is included in prior period errors, according to AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors?

A. Mathematical mistakes

B. Mistakes in applying accounting policies

C. Oversights or misinterpretations of facts

D. All of the given answers are correct.

28. Depending upon the background to the change, changes in accounting policy are to be made:

A. retrospectively

B. prospectively

C. retrospectively or prospectively

D. None of the given answers are correct.

29. Changes in an entity's equity between the beginning and the end of the reporting period reflect the _________________ in its net assets during the period.

A. increase or decrease

B. increase

C. decrease

D. decrease or no change

30. Define 'expenses' as per the Conceptual Framework.

______________________________________________________________________________

31. Define 'asset' as per the Conceptual Framework.

______________________________________________________________________________

32. What is total comprehensive income?

______________________________________________________________________________

33. Why do we need to understand what a reclassification adjustment represents?

______________________________________________________________________________

34. Discuss estimates as part of preparing financial statements. Why do we need to know about them?

______________________________________________________________________________

35. What is meant by 'prior period errors', as per AASB 108?

______________________________________________________________________________

36. Discuss disclosing 'prior period errors', as per AASB 108.

______________________________________________________________________________

37. Define 'accounting policy' as per AASB 108.

______________________________________________________________________________

38. Why do we need to understand accounting policies applied by an organisation, together with changes therein?

______________________________________________________________________________

39. What is the role of the statement of changes in equity?

______________________________________________________________________________

40. What is meant by 'gains'?

______________________________________________________________________________

Chapter 16 Testbank