1. An entity opens a new factory in which a completely new type of product will be produced. When constructing the factory, the entity purchases a machine for the new assembly line. Which of the following expenditures are included in the cost of the machine? A) Delivery costs B) Costs for assembly of machine C) Raw material necessary to test the quality of the products produced by the machine D) Engineering fees charged for the design of foundations for the machine E) All of the above F) A and B

2. What accounting treatment should be used if an entity has incurred expenditure that is unlikely to generate future economic benefits for the entity? A) Recognition as a deferred asset B) Recognition as an expense C) Amortisation over a period of no more than two operating cycles D) Recognition as unearned revenues E) None of the above F) A and B

3. Australian Accounting Standards currently allow entities to value some assets at cost and other assets in the same balance sheet at fair value. This means that the Australian Accounting Standards Board has: A) Ensured that the financial statements of multiple firms are easily comparable B) Created a situation where the amount of total assets shown in a financial statement is neither the total cost of all assets nor their fair value assessments C) Forced entities to accurately reflect their true financial position at any point in time D) Specified the account treatment for each type of asset in the Australian Accounting Standards E) C and D F) None of the above

4. An entity purchases a machine for a direct cost of $100,000. In addition, the entity pays $15,000 for assembly of the machine and $10,000 for modifications which are necessary to use the machine as intended by the entity. The machine has a useful life of 3 years and a residual value of $20,000 at the end of this period. What is the amount (rounded to the closest full $ amount) by which the asset is depreciated in the SECOND year of the assets useful life, using the sum-of-digits method? A) $13,750 B) $21,500 C) $35,000 D) $58,750 E) $47,500 F) None of the above

5. When choosing a depreciation method for a newly acquired item, managers: A) Are free to choose any depreciation method they like because there are no legal requirements that might limit their choices B) Must be careful when making their decision because the method of depreciation for an individual item cannot be changed after the first depreciation charge is recorded C) Are required to follow positive accounting theory and select the depreciation method which best serves their own interests D) Are required to choose the depreciation method that best reflects the pattern in which the assets future economic benefits are expected to be consumed by the entity E) A and B F) None of the above

6. Which of the following procedures must be used to determine the recoverable amount of a machine which is included in the Machinery/Equipment account of an entity? A) Determine the higher of the present value of the future cash flows that the item will generate for the entity and the price for which the item could be sold, less any costs to sell B) Determine the price for which the item could be sold, less any selling costs C) Determine the present value of the future cash flows that the item will generate for the entity, plus all accumulated depreciation of the machine D) Determine the lower of the items net selling price and its value in use E) Determine how much the entity would have to pay to purchase the item today F) None of the above

7. An entity purchases a machine on the 1 July 20x1 for $40,000. It is expected that the machine has a useful life of 8 years and straight line depreciation is used to depreciate the machine. On the 30 June 20x3, the machine is re-valued to its fair value of $45,000. Which of the following journal entries records the revaluation of the machine correctly? A) Dr Machinery/Equipment 32,000 Cr Acc. Dep. Machinery/Equipment 12,000 Cr Revaluation Surplus 20,000 To record revaluation of the machine B) Dr Acc. Dep. Machinery/Equipment 15,000 Cr Machinery/Equipment 15,000 To record transfer of accumulated depreciation to asset account Dr Machinery/Equipment 20,000 Cr Revaluation Surplus 20,000 To record revaluation of the machine C) Dr Machinery/Equipment 5,000 Cr Revaluation Surplus 5,000 To record revaluation of the machine D) Dr Acc. Dep. Machinery/Equipment 10,000 Cr Machinery/Equipment 10,000 To record transfer of accumulated depreciation to asset account Dr Machinery/Equipment 15,000 Cr Revaluation Surplus 15,000 To record revaluation of the machine E) Dr Machinery/Equipment 5,000 Dr Acc. Dep. Machinery/Equipment 15,000 Cr Revaluation Surplus 20,000 To record revaluation of the machine F) None of the above

8. Calculate the present value (rounded to the next full $ amount) of a one-off payment of $100,000 which an entity will receive in 5 years time, based on a discount rate of 8%. A) $ 56,236 B) $ 68,058 C) $ 94,525 D) $ 75,698 E) $ 82,257 F) None of the above

9. The inventory of an entity consists of: A) Cash in cash registers used to provide change to customers B) Non-current assets that the entity is planning to sell in the next 12 month C) Assets that are used over a long period of time to deliver a service to multiple customers D) Items currently undergoing the production process which will be sold once they are completed E) B and D F) B, C and D

10. Assuming that no deferred tax assets or liabilities exist, and assuming that the entity has not prepaid any income taxes during the year, the amount of income tax that an entity must pay to the Australian Taxation Office at the end of the year will be shown in which of the following accounts? A) Taxes Payable B) Deferred Tax Assets C) Interest Payable D) Accounts Receivable E) Deferred Tax Liability F) None of the above

11. Cash flow statements: A) Provide detailed information about all individuals that have made payments to, or received payments from the entity B) Include a section titled financing activities which provides information about how the entity invests its cash and cash equivalents C) Provide information about the source and use of the entitys cash and cash equivalents D) Are period based, not accruals based E) All of the above F) C and D

12. Which of the following transactions are included in the investing section of a cash flow statement? A) Payment of wages B) Payment of dividends C) Purchase of a new company car D) All of the above E) A and C F) B and C

13. An entity is in the process of completing its financial reports for the period ended 30 June 201x. When the entitys accountant checks the net realisable value of inventory at the reporting date, it becomes obvious that a number of items are recognised at a cost greater than their net realisable value and these overstatements have a material effect on the accounts. Which of the following treatments is required? A) Disclosure of the overstatement in the directors declaration, including an explanation how this issue will be dealt with in the following period B) Disclosure of the overstatement in the notes, including an explanation how the issue will be dealt with in the following period C) No action is required D) Adjustment of the value of inventory in the financial statements to reflect the lower net realisable value E) Disclosure of overstatement in the directors declaration without any additional explanation F) None of the above

14. An asset is likely to be a current asset if: A) It is primarily held for the purpose of trading B) The asset will be consumed within 5 years of the reporting date C) It is sold within the entities normal operating cycle D) The asset in question is a long term (18 month) bank deposit E) All of the above F) A and C