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Worksheets2. CPA Financial Accounting & Reporting Quick Revision Module 2
Total questions: 25
Worksheet time: 2hrs 5mins
Name
Class
Date
1.
Which statement is correct of the historical cost convention?
a)
It records only past transactions.
b)
It fails to take account of changing price levels over time.
c)
It has been replaced in accounting records by a system of current cost accounting.
d)
It values all assets at their cost to the business, without any adjustment for depreciation.
2.
Under what basis are assets usually valued?
a)
Historical cost
b)
Fair value
c)
Current cost
d)
Fulfilment value
3.
In times of rising prices, what effect does the use of the historical cost concept have on a company's asset values and profit?
a)
Asset values and profit both overstated
b)
Asset values and profit both understated
c)
Asset values understated and profit overstated
d)
Asset values overstated and profit understated
4.
Korbin Co. buys a machine for $50 000, paying $2 000 delivery charge. It will generate income of $8 000 per annum for seven years. At the end of seven years it will be scrapped, Korbin will pay a scrapping fee of $1 000 but will receive $4 000 for the scrap metal. What is its value in use?
a)
$50 000
b)
$52 000
c)
$59 000
d)
$60 000
5.
Ladybird Co. purchased machine four years ago for $12 000, two years ago they paid for an upgraded component which cost $2 000, the machine is expected to have a useful life of six years. The machine can be purchased today for $14 000 and the upgrade component for $2 500. What is the current cost of the machine?
a)
4667
b)
5000
c)
5500
d)
5917
6.
Which of the following statements is correct?
a)
Positive accounting theory is not based on actual accounting practice.
b)
Normative accounting theory attempts to predict actual accounting practice.
c)
The use of a conceptual framework is an example of positive accounting theory.
d)
The development of alternatives to historic cost is an example of normative accounting theory.
7.
What does the following statement describe? 'The point of reference by which profit is measured; it is a prerequisite for distinguishing between an entity's return on capital and its return of capital.'
a)
Fair value
b)
Historical cost
c)
Capital maintenance
d)
Current cost accounting
8.
Consider the following statements: I. Specific price inflation is based on the average rate of inflation. II. General price inflation measures price changes for a particular group of assets. Which statements are correct?
a)
I only
b)
II only
c)
Both I and II
d)
Neither I nor II
9.
Which of the following statements about current purchasing power accounting (CPP) are correct? I. It measures profit as the increase in nominal money capital over the period. II. It measures profit as the difference between income and expenses after allowing for the effect of inflation. III. It measures profit as the difference between income and expenses after ensuring that physical capital has been maintained.
a)
II only
b)
III only
c)
I and II only
d)
I and III only
10.
Which of the following is not used as a measure of deprival value?
a)
Fair value
b)
Economic value
c)
Replacement cost
d)
Net realisable value
11.
Historical cost accounting remains in use because of its practical advantages. Which of the following is not an advantage of historical cost accounting?
a)
Amounts of transactions are reliable and can be verified
b)
Amounts in the statement of financial position can be matched to amounts in the statement of cash flows
c)
It avoids the overstatement of profit which can arise during periods of inflation
d)
It provides fewer opportunities for creative accounting than systems of current value accounting
12.
Overstatement of profits can arise during periods of inflation. This then leads to a number of other consequences. Which of the following is not a likely consequence of overstatement of profits?
a)
Higher wage demands from employees
b)
Higher tax bills
c)
Reduced dividends to shareholders
d)
Overstated EPS
13.
Suter Co. acquired an item of plant on 31 December 20X2 at a cost of $500 000. It has a useful life of five years (straight-line depreciation) and an estimated residual value of 10 per cent of its historical cost or current cost as appropriate. As at 31 December 20X4, the manufacturer of the plant still makes the same item of plant and its current price is $600 000. What is the correct carrying amount to be shown in the statement of financial position of Suter Co. as at 31 December 20X4 under historical cost and current cost?
a)
Historical cost: 320,000 - Current Cost: 600,000
b)
Historical cost: 320,000 - Current Cost: 384,000
c)
Historical cost: 300,000 - Current Cost: 600,000
d)
Historical cost: 300,000 - Current Cost: 384,000
14.
The 'physical capital maintenance' concept states that profit is the increase in the physical productive capacity of the business over the period. What type of accounting is this concept is applied in?
a)
Current cost accounting
b)
Historical cost accounting
c)
Current value accounting
d)
Current purchasing power accounting
15.
What does the following statement define? 'A contract under which one or more persons engage another person to perform some service on their behalf.'
a)
Accountability
b)
Agency theory
c)
Principal theory
d)
Substance over form
16.
Fiduciary duty is:
a)
the directors running a company on behalf of the shareholders.
b)
the need for directors to prepare financial statements that show a true and fair view.
c)
the need for directors to disclose their personal shareholding in a company they manage.
d)
the need for directors to act in the best interests of the company and not out of self-interest.
17.
Which of the following are examples of agency costs? I. Directors' salaries, II. External audit fees, III. Finance department salaries
a)
I only
b)
II only
c)
I and II only
d)
I, II and III
18.
According to IAS 1 Presentation of Financial Statements, which of the following are mandatory disclosures in the annual financial report? I. Risk review, II. Accounting policies, III. Environmental report IV. Statement of profit or loss
a)
IV only
b)
II and IV only
c)
I, II and IV only
d)
I, II, III and IV
19.
ABC Co. is a large company, listed on the ASX. Which of the following items is it required to prepare as part of its annual financial report? I. A Chairman's Statement, II. A corporate governance report
a)
I only
b)
II only
c)
Both I and II
d)
Neither I nor II
20.
Which of the following must be disclosed in a non-listed company's annual report?
a)
Accounting policies
b)
Environmental report
c)
Management commentary
d)
Corporate governance statement
21.
Who is responsible for the preparation of the financial statements?
a)
The external auditors.
b)
The finance director.
c)
The board of directors.
d)
The internal audit department.
22.
Which of the following statements is/are correct? I. Paying management fixed levels of pay, helps to alleviate the agency problem, II. Incentive schemes for managers such as profit related pay can lead to creative accounting
a)
I only
b)
II only
c)
Both I and II
d)
Neither I nor II
23.
If an auditor is unable to gather the evidence needed on their audit due to a fire destroying most of a company’s accounting records, what type of audit opinion should they give?
a)
Unqualified
b)
Modified
c)
Disclaimer
d)
Adverse
24.
Which of the following statements is/are correct? I. A management commentary should provide management's view of the entity's performance, position and progress, II. A management commentary should focus on the comparison of the current year’s results with previous periods
a)
I only
b)
II only
c)
Both I and II
d)
Neither I nor II
25.
Which of the following does not form part of a company’s main financial statements?
a)
Statement of cash flows
b)
Directors' report
c)
Notes to the accounts
d)
Statement of financial position
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