Questions and Answers of Advanced Financial Accounting An International

All of the following are needed for the computation of depreciation except:(a) Expected disposal date.(b) Cost.(c) Residual value.(d) Estimated total useful life to the present and future owners.
If an asset were to cost 24,000 and have a residual value of 3,000 and a useful life of six years, the depreciation in the second year, using the sum-of-the-years-digits method, would be: (a) 6,857.
Using the figures of Question 9.13, which of the following methods would result in the least depreciation in the first year? (a) Straight-line. (b) Sum-of-the-years-digits. (c) Declining-balance. (d)
The sale of equipment costing 8,000, with accumulated depreciation of 6,700 and sale price of 2,000, would result in a: (a) Gain of 2,000. (b) Gain of 700. (c) Loss of 700. (d) Loss of 600.
Harlem Corporation purchased a piece of equipment on 1 June 20X1 for 15,000. The equipment has an estimated life of ten years or 25,000 units of production and an estimated residual value of 2,500.
According to the information given in Question 9.16, the amount of depreciation to be recorded for the year 20X1, using the units of production method and assuming that 3,500 units were produced, is:
According to the information given in Question 9.16, except that the machine was bought on 1 January 20X1, the amount of depreciation to be recorded for the year, using the sum-of-the-year-digits
Under IFRS arrangements, impairment of a machine is usually calculated by comparing depreciated cost with:(a) Replacement cost.(b) Value in use.(c) Net selling price.(d) Inflation-adjusted cost.
Revaluation of tangible fixed assets is not allowed under the rules of:(a) United Kingdom.(b) IFRS.(c) Germany.(d) Netherlands.
In most countries, the basis of fixed asset valuation (after adjusting for depreciation where appropriate) is normally:(a) The selling price of the asset.(b) The original purchase cost.(c) The
What are the essential criteria used to distinguish a fixed asset from other assets?
For each of machines 1, 2 and 3 in Exercise 9.3, outline the effect on reported profits, and on the balance sheet, as included in the published financial statements.
In chapter 3 of this book, the following question was asked as Question 3.7:On 21 December 20X1, your client paid i10,000 for an advertising campaign. The advertisements will be heard on local radio
Provide in your own words:(a) an explanation of what depreciation is;(b) an explanation of the net book value (NBV) of a partially depreciated fixed asset.
The payments set out in Table
have been made during the year in relation to a fixed asset bought at the beginning of the year:What cost figure should be used as the basis for the depreciation charge for the year, and why? Table
Inventory costing methods such as LIFO and FIFO are different methods of discovering the actual cost of specific inventory items.(a) True.(b) False.
An overstatement of opening inventory results in:(a) No effect on the period’s net income.(b) An overstatement of net income.(c) An understatement of net income.(d) A need to adjust purchases.
An overstatement of closing inventory in one period results in:(a) No effect on net income of the next period.(b) An overstatement of net income of the next period.(c) An understatement of net income
In a period of declining prices, which of the following methods generally results in the lowest balance sheet figure for inventory?(a) Average cost method.(b) LIFO method.(c) FIFO method.(d) Cannot
In a period of rising prices, which of the following methods generally results in the lowest net income figure?(a) Average cost method.(b) LIFO method.(c) FIFO method(d) Cannot tell without more
A retail company has goods available for sale for the year of i500,000 at retail( # i300,000 at cost) and closing inventory of i50,000 at retail. What is the estimated cost of goods sold?(a)
With reference to Table 10.14 and using the item-by-item method of applying the lower-of-cost-or-market rule to valuing the inventory, the value assigned to inventory item C for inclusion in total
Using the information from Question 10.7 and the item-by-item method of applying the lower-of-cost-or-market rule to valuing the inventory, the total value of inventory appearing on the balance sheet
Assuming that net purchases cost i250,000 during the year and that closing inventory was i4,000 less than the opening inventory of i30,000, how much was the cost of goods sold?(a) i246,000.(b)
Assume a company has a periodic inventory system with an opening balance of i20,000, purchases of i150,000, and sales of i250,000. The company closes its records once a year on 31 December. In the
Marcus Co. has been in operation for three years. The purchases and sales information in Table 10.16 represents the company’s activities for its first three years:Prepare a schedule illustrating
Using the information contained in Exercise 10.3 above, calculate the value of the year-end inventories using FIFO and LIFO. Also, prepare profit and loss accounts showing the gross profit under each
What is meant by ‘lower of cost and net realizable value’? What difficulties exist in the application of this rule?
‘The four essential conditions of IAS 11 (see section 10.10) provide entirely adequate safeguards for the use of the percentage of completion method in long-term contracts.When these requirements
Receivables are valued at:(a) The amount prudently expected to be received.(b) The amount legally due from the debtors.(c) The amount realizable by selling them to someone else.(d) Depreciated
Under IFRS rules, investments are valued:(a) All at cost.(b) All at lower of cost and market.(c) All at fair value.(d) At cost or fair value depending on their nature.
A provision is:(a) The recognition of a probable future obligation.(b) A fund of money and investments.(c) A liability of uncertain timing or amount.(d) The recognition of unavoidable future expenses
Creditors are:(a) Non-monetary assets.(b) Monetary liabilities.(c) Monetary assets.(d) Non-monetary liabilities.
A company might prefer to raise more debt capital rather than equity capital in order to:(a) Get more owners.(b) Minimize its tax.(c) Reduce the risk of bankruptcy.(d) Reassure its creditors.
In a rights issue, shares are sold in which way?(a) New shares are sold to existing shareholders.(b) Existing shares are sold by some shareholders to others.(c) Existing debentures are sold to
At the end of an accounting period a company calculates the amount of pension expense to be charged. What double entry is required to record this?(a) Debit provision for pension, credit pension
Setting up a provision for redundancy costs has the following effects:(a) Cash rises; income falls.(b) Income falls; net worth falls.(c) Cash falls; income rises.(d) Cash falls; income falls.
A ‘legal reserve’ such as operated in Germany and France is designed to:(a) Protect the shareholders.(b) Set up a store of cash.(c) Protect the creditors.(d) Reduce tax payments.
‘There is usually no problem with the valuation of receivables because it is clear how much is legally owed to an enterprise.’ Discuss.
Companies are seen as separate from their owners:(a) Legally but not for other purposes.(b) Legally and for financial reporting, but not for tax.(c) For legal, reporting and tax purposes.
In financial statements prepared under which regulatory system are the most significant amounts of deferred tax liability likely to be found?(a) German system.(b) French system.(c) Italian system.(d)
Deferred tax can best be described as:(a) Tax bills due in more than one year.(b) Amounts only likely to be paid when the company ceases to operate.(c) Tax implied by asset and liability valuations
In which one of the following national systems are depreciation charges most closely tied to tax rules?(a) United States.(b) United Kingdom.(c) Germany.(d) Netherlands.
In Germany or France, deferred tax balances are likely to be largest for:(a) An individual company’s balance sheet following national accounting rules.(b) An individual company’s balance sheet
The book value of a depreciating tangible fixed asset is 200 in the financial statements on 31 December 20X1. The tax value is 80 on the same date. The tax rate is 40 per cent. What deferred tax
The same information as in Question 12.6 applies to this question plus the following:the book value of the tangible fixed asset is 180 in the financial statements on 31 December 20X2; and the tax
The cash flow statement provides a useful complement to the other annual financial statements because:(a) It provides new information, mostly not available elsewhere in the other statements or their
Which one of the following results in a cash flow?(a) An issue of bonus shares.(b) A rights issue of shares.(c) A depreciation charge.(d) Revaluing a fixed asset.
In a cash flow statement, which one of the items below would appear as a cash inflow?(a) Revaluation of fixed assets.(b) Profit on disposal of fixed assets.(c) Purchase of fixed assets.(d) Proceeds
Cash flow statements for limited companies are required by both International Accounting Standards and EU Directives.(a) True.(b) False.
Under IAS 7, any principal revenue-producing activity that is not an investing or a financing activity is automatically an operating activity.(a) True.(b) False.
All enterprises following IAS 7 will have consistently calculated figures for ‘cash equivalents’.(a) True.(b) False.
The direct method of calculating cash flows from operating activities uses actual cash movements. In times of rising price levels it is therefore likely to lead to higher reported cash flows from
A change in depreciation rates will lead to a change in reported cash flows from operating activities.(a) True.(b) False.
Which country does not generally use a version of Roman commercial law?(a) France.(b) Germany.(c) United States.(d) Japan.
The primary source of new accounting rules in the United Kingdom is:(a) Parliament.(b) Government departments.(c) The Accounting Standards Board.(d) The Financial Reporting Review Panel.
An accounting plan, including a chart of accounts, is an important source of accounting rules in:(a) The United States.(b) Denmark.(c) France.(d) The Netherlands.
Withdrawals (drawings) by the owner of a sole proprietorship are similar in nature to which of the following for corporations?(a) Investments by shareholders.(b) Payments to creditors.(c) Retained
The partnership format might be useful to the owners of a small business in order to:(a) Share risks.(b) Gain limited liability.(c) Reduce taxable income.(d) Share profits.
A company’s income statement would normally include which of the following items that would not be found on an income statement of a sole trader?(a) Tax expense. (c) Interest expense.(b) Interest
Corporations generally have which of the following differences from partnerships in the English legal system, as also operated in the United States? (Please read through the complete question before
What is the meaning of the word ‘limited’ in the name of a limited company?(a) The number of shareholders is limited to 50.(b) The liability of the company for its own debts is limited.(c) The
Private-sector professional accountancy bodies were invented by:(a) The Romans.(b) Fourteenth-century Italians.(c) Nineteenth-century Britons.(d) Twentieth-century Americans.
In which of the following countries are depreciation charges most closely tied to tax rules?(a) United States.(b) United Kingdom.(c) Germany.(d) Netherlands.
Which country’s predominant accounting system generally has the most conservative income calculations?(a) United States.(b) United Kingdom.(c) Netherlands.(d) Japan.
Which country has the smallest number of domestic listed companies?(a) United States.(b) United Kingdom.(c) Australia.(d) Germany.
Which country has the smallest number of professional auditors?(a) United States.(b) United Kingdom.(c) Canada.(d) Japan.
International differences of financial reporting might cause difficulties for:(a) Investors. (d) Managers of multinational companies.(b) Bankers. (e) All of the above.(c) Auditors of multinational
The EU’s Fourth Directive (on company law) was published in the following decade:(a) 1960s.(b) 1970s.(c) 1980s.(d) 1990s.
Which country was not a member of the Common Market (now the EU) when the first draft of the Fourth Directive was published in 1971?(a) France.(b) Italy.(c) United Kingdom.(d) Belgium.
The IASC was founded in:(a) 1968.(b) 1973.(c) 1978.(d) 1985.
In which country did the smallest proportion of the largest 100 companies comply with IASs in 2000?(a) France.(b) United Kingdom.(c) Germany.(d) Switzerland.
Until 2001, the representatives on the Board of the IASC were mainly appointed by:(a) Accountancy bodies.(b) Governments.(c) National standard setters.(d) Stock exchanges.
IAS 1 requires the separation of current and non-current (fixed) assets in a balance sheet.(a) True.(b) False.
A current asset must be expected to change its form within 12 months according to IAS 1.(a) True.(b) False.
Using an income statement analyzed by function, cost of sales cannot be determined.(a) True.(b) False.
European Union Directives require the publication of a cash flow statement for listed enterprises.(a) True.(b) False.
IAS 34 requires that listed enterprises produce interim reports at least half-yearly.(a) True.(b) False.
A by-nature income statement shows an increase in inventory as an addition to net turnover, whereas a by-function presentation treats it as an adjustment to expenses.On average, therefore, the
IAS 1 requires that the heading of ‘property, plant and equipment’ must always appear on the face of an enterprise’s balance sheet if the figure is material.(a) True.(b) False.
Under the European Union Fourth Directive, which one of the following headings is not shown separately when following the vertical profit and loss account in by-nature format?(a) Net turnover.(b)
Which of the following would be most likely to be classified as a current liability?(a) Mortgage payable.(b) Deferred tax.(c) Taxes payable.(d) Five-year bills payable.
Which of the following is a measure of liquidity?(a) Working capital.(b) Profit margin.(c) Return on assets.(d) Return on equity.
Current assets divided by current liabilities is known as:(a) Working capital.(b) Current ratio.(c) Profit margin.(d) Capital structure.
One measure of capital structure or gearing is:(a) Current assets minus current liabilities.(b) Current assets divided by current liabilities.(c) Net income divided by total assets.(d) Total
The net assets of a company equal:(a) Current assets minus current liabilities.(b) Total assets minus current liabilities.(c) Shareholders’ funds minus liabilities.(d) Shareholders’ funds.
High gearing is:(a) Always good.(b) Always bad.(c) Can be either good or bad.Data for questions 7.7–7.11 The trading account of B Co. for the year ended 30 June 20X3 is set out in Figure 7.7.The
have been extracted from the company’s balance sheet at 30 June 20X3. In the questions that follow, you should assume a year of 365 days. Figure 7.7 Trading account of B Co. for year to 30 June
The average inventory turnover period in days is:(a) 33 days.(b) 37 days.(c) 49 days(d) 51 days.
The debtors collection period in days is:(a) 51 days.(b) 54 days.(c) 67 days.(d) 72 days.
The creditors payment period in days is:(a) 45 days.(b) 47 days.(c) 50 days.(d) 78 days.
The current ratio at 30 June 20X3 is:(a) 1.25: 1.(b) 1.93 : 1.(c) 2.04 : 1.(d) 2.12 : 1.
It can be suggested that eight different groups of users of accounting information can be distinguished, i.e.:• Managers• Investors• Lenders• Employees• Suppliers and other creditors•
Outline the relative benefits to users of financial reports of:(a) information about the past;(b) information about the present;(c) information about the future.
Do you think that users know what to ask for from their accountant or financial adviser? Explain your answer.
A balance sheet is designed to show:(a) The financial position of an enterprise under accounting conventions.(b) What the enterprise could be sold for.(c) The performance of the enterprise for the
An enterprise’s profit for the year may be computed by using which of the following formulae?(a) Opening capital + drawings - capital introduced - closing capital.(b) Closing capital + drawings -
The profit earned by an enterprise in 20X1 was i72,500. The owner injected new capital of i8,000 during the year and withdrew goods for his private use that had cost i2,200. If net assets at the
Which of the following is not a satisfactory statement of the balance sheet equation?(a) Assets #= liabilities - owner’s equity.(b) Assets - liabilities = owner’s equity.(c) Assets = liabilities

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