Question 1

Under AASB 101 something may be classified as a current liability even when it is not expected to be settled for a period in excess of 12 months:

Accepted Answer

A) True 
 B)False

Question 2

What is the appropriate treatment for convertible notes in accordance with AASB 132 "Financial Instruments: Presentation"?

Accepted Answer

A)  as a financial liability; 
B)  as equity; 
C)  as part debt and part equity; 
D)  as a financial liability and disclosure of conversion option; 
E)  None of the given answers. 
A)  as a financial liability; 
B)  as equity; 
C)  as part debt and part equity; 
D)  as a financial liability and disclosure of conversion option; 
E)  None of the given answers.

Question 3

In AASB 137 "Provisions, Contingent Liabilities and Contingent Assets", there is symmetry in the treatment of contingent liabilities and contingent assets where both are required to be disclosed when the contingent event is probable to occur.

Accepted Answer

A) True 
 B)False

Question 4

When debentures are issued at a discount:

Accepted Answer

A)  The discount represents the cost of attracting the funds and should be recognised as an expense. 
B)  No further entries are required because the discount is calculated prior to receipt of the funds and therefore will not be recorded. 
C)  A decision needs to be made as to whether to use the straight-line or effective-interest rate methods if the discount is to be amortised. 
D)  The discount amount can be used to offset any gains shown when debentures have been issued at a premium. 
E)  None of the given answers. 
A)  The discount represents the cost of attracting the funds and should be recognised as an expense. 
B)  No further entries are required because the discount is calculated prior to receipt of the funds and therefore will not be recorded. 
C)  A decision needs to be made as to whether to use the straight-line or effective-interest rate methods if the discount is to be amortised. 
D)  The discount amount can be used to offset any gains shown when debentures have been issued at a premium. 
E)  None of the given answers.

Question 5

A discount on debentures issued arises when the market required rate of return is less than the coupon rate:

Accepted Answer

A) True 
 B)False

Question 6

Outside the situation where specific types of provisions are covered in standards, a provision exists when and only when:

Accepted Answer

A)  The entity has a present legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain. 
B)  There is a legal or constructive obligation to make a future sacrifice of economic benefits within the entity as a result of past transactions or other past events, the amount or timing of which is uncertain. 
C)  The entity has a present legal obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain. 
D)  The amount, timing and entity to whom the obligation to sacrifice future economic benefits as a result of a past legal or constructive obligation are unknown. 
E)  None of the given answers. 
A)  The entity has a present legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain. 
B)  There is a legal or constructive obligation to make a future sacrifice of economic benefits within the entity as a result of past transactions or other past events, the amount or timing of which is uncertain. 
C)  The entity has a present legal obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain. 
D)  The amount, timing and entity to whom the obligation to sacrifice future economic benefits as a result of a past legal or constructive obligation are unknown. 
E)  None of the given answers.

Question 7

Examples of contingent liabilities include:

Accepted Answer

A)  Future payments arising under employee entitlements for long service leave. 
B)  Past tax deductions claimed that are under review by the Australian Taxation Office, but which the entity intends to dispute if disallowed. 
C)  Out of court settlements in the case of liability for damage to health due to products manufactured by the entity. 
D)  Past tax deductions claimed that are under review by the Australian Taxation Office, but which the entity intends to dispute if disallowed and out of court settlements in the case of liability for damage to health due to products manufactured by the entity 
E)  All of the given answers. 
A)  Future payments arising under employee entitlements for long service leave. 
B)  Past tax deductions claimed that are under review by the Australian Taxation Office, but which the entity intends to dispute if disallowed. 
C)  Out of court settlements in the case of liability for damage to health due to products manufactured by the entity. 
D)  Past tax deductions claimed that are under review by the Australian Taxation Office, but which the entity intends to dispute if disallowed and out of court settlements in the case of liability for damage to health due to products manufactured by the entity 
E)  All of the given answers.

Question 8

Which of the following is not listed in AASB 101 to determine if a liability should be classified as current?

Accepted Answer

A)  If the liability is guaranteed to be settled within 12 months. 
B)  If the liability is held primarily for the purpose of being traded. 
C)  If the entity does not have an unconditional right to defer settlement of the liability for at least 12 months. 
D)  If the liability is expected to be settled in the entity's normal operating cycle. 
E)  None of the given answers. 
A)  If the liability is guaranteed to be settled within 12 months. 
B)  If the liability is held primarily for the purpose of being traded. 
C)  If the entity does not have an unconditional right to defer settlement of the liability for at least 12 months. 
D)  If the liability is expected to be settled in the entity's normal operating cycle. 
E)  None of the given answers.

Question 9

If future cash flows are not discounted the effect in the financial statements is to:

Accepted Answer

A)  Report amounts of cash outflows that are the same but occur over different time periods as the same amount. 
B)  Report net cash flows at their future value rather than their present value. 
C)  Understate the amount of the present obligation. 
D)  Report net cash flows at their future value rather than their present value and understate the amount of the present obligation 
E)  None of the given answers. 
A)  Report amounts of cash outflows that are the same but occur over different time periods as the same amount. 
B)  Report net cash flows at their future value rather than their present value. 
C)  Understate the amount of the present obligation. 
D)  Report net cash flows at their future value rather than their present value and understate the amount of the present obligation 
E)  None of the given answers.

Question 10

What is the treatment of contingent liabilities in the financial statements?

Accepted Answer

A)  Contingent liabilities are to be recognised as a separate category in the balance sheet, with clear note disclosure of the factors that constitute the contingent event for each material contingent liability. 
B)  Contingent liabilities are required to be disclosed in the notes to the accounts only when they are individually material and categories are required to be disclosed only when the category is material. 
C)  Material contingent liabilities only are required to be recognised in the financial statements under AASB 137. 
D)  Contingent liabilities are to be disclosed in the notes to the accounts in categories that reflect their nature and possible timing. 
E)  None of the given answers. 
A)  Contingent liabilities are to be recognised as a separate category in the balance sheet, with clear note disclosure of the factors that constitute the contingent event for each material contingent liability. 
B)  Contingent liabilities are required to be disclosed in the notes to the accounts only when they are individually material and categories are required to be disclosed only when the category is material. 
C)  Material contingent liabilities only are required to be recognised in the financial statements under AASB 137. 
D)  Contingent liabilities are to be disclosed in the notes to the accounts in categories that reflect their nature and possible timing. 
E)  None of the given answers.

Question 11

Some provisions traditionally recorded by entities may not be considered liabilities under the AASB Framework because:

Accepted Answer

A)  Their amounts are not considered probable. 
B)  They do not involve a future sacrifice of economic benefits. 
C)  The identity of the external party to whom the present obligation is owed is unknown. 
D)  There is no entity other than the reporting entity involved in the present obligation as a result of past transactions or other past events. 
E)  None of the given answers. 
A)  Their amounts are not considered probable. 
B)  They do not involve a future sacrifice of economic benefits. 
C)  The identity of the external party to whom the present obligation is owed is unknown. 
D)  There is no entity other than the reporting entity involved in the present obligation as a result of past transactions or other past events. 
E)  None of the given answers.

Question 12

In accordance with AASB 137 "Provisions, Contingent Liabilities and Contingent Assets" some present obligations are allowed to be disclosed in the notes to the financial statements.

Accepted Answer

A) True 
 B)False

Question 13

Some researchers have found that firms can benefit from being in financial distress:

Accepted Answer

A) True 
 B)False

Question 14

In determining the amount to be assigned to the equity component of a compound financial instrument, you must:

Accepted Answer

A)  Add the face value of the financial liability to the fair value of the compound financial instrument as a whole. 
B)  Deduct the face value of the financial liability from the fair value of the compound financial instrument as a whole. 
C)  Deduct the face value of the financial liability from the face value of the compound financial instrument as a whole. 
D)  Add the fair value of the financial liability to the fair value of the compound financial instrument as a whole. 
E)  Deduct the fair value of the financial liability from the fair value of the compound financial instrument as a whole. 
A)  Add the face value of the financial liability to the fair value of the compound financial instrument as a whole. 
B)  Deduct the face value of the financial liability from the fair value of the compound financial instrument as a whole. 
C)  Deduct the face value of the financial liability from the face value of the compound financial instrument as a whole. 
D)  Add the fair value of the financial liability to the fair value of the compound financial instrument as a whole. 
E)  Deduct the fair value of the financial liability from the fair value of the compound financial instrument as a whole.

Question 15

In terms of accounting treatment under AASB 132 debentures and bonds are the same thing:

Accepted Answer

A) True 
 B)False

Question 16

All things being equal, firms would typically prefer to disclose low levels of debt because:

Accepted Answer

A)  Any debt is a bad thing in the capital structure of a business. 
B)  Additional debt may lead to a technical breach of a firm's contractual agreements with existing debt-holders and lead to the possible wind-up of the business or the need to renegotiate the contract. 
C)  The level of recognised debt will affect the profitability of the business. 
D)  Recognising debt in the income statement may lead to a decrease in management bonuses that are based on the times-interest-earned and debt-to-assets ratios. 
E)  None of the given answers. 
A)  Any debt is a bad thing in the capital structure of a business. 
B)  Additional debt may lead to a technical breach of a firm's contractual agreements with existing debt-holders and lead to the possible wind-up of the business or the need to renegotiate the contract. 
C)  The level of recognised debt will affect the profitability of the business. 
D)  Recognising debt in the income statement may lead to a decrease in management bonuses that are based on the times-interest-earned and debt-to-assets ratios. 
E)  None of the given answers.

Question 17

When measuring a liability at present values, the discount rate to be used, according to paragraph 47 of AASB 137, is:

Accepted Answer

A)  The pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. 
B)  The after-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. 
C)  The pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability, and shall also reflect risks for which future cash flows have already been adjusted. 
D)  The pre-tax risk free rate. 
E)  The pre-tax rate for a government bond of the equivalent duration. 
A)  The pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. 
B)  The after-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. 
C)  The pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability, and shall also reflect risks for which future cash flows have already been adjusted. 
D)  The pre-tax risk free rate. 
E)  The pre-tax rate for a government bond of the equivalent duration.

Question 18

An equitable or constructive obligation arises when:

Accepted Answer

A)  Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits. 
B)  Management makes a discretionary decision to make a future sacrifice of economic benefits. 
C)  Management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned. 
D)  Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits and management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned. 
E)  All of the given answers. 
A)  Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits. 
B)  Management makes a discretionary decision to make a future sacrifice of economic benefits. 
C)  Management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned. 
D)  Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits and management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned. 
E)  All of the given answers.

Exam 10: An Overview of Accounting for Liabilities

Under AASB 101 something may be classified as a current liability even when it is not expected to be settled for a period in excess of 12 months:

What is the appropriate treatment for convertible notes in accordance with AASB 132 "Financial Instruments: Presentation"?

In AASB 137 "Provisions, Contingent Liabilities and Contingent Assets", there is symmetry in the treatment of contingent liabilities and contingent assets where both are required to be disclosed when the contingent event is probable to occur.

When debentures are issued at a discount:

A discount on debentures issued arises when the market required rate of return is less than the coupon rate:

Outside the situation where specific types of provisions are covered in standards, a provision exists when and only when:

Examples of contingent liabilities include:

Which of the following is not listed in AASB 101 to determine if a liability should be classified as current?

If future cash flows are not discounted the effect in the financial statements is to:

What is the treatment of contingent liabilities in the financial statements?

Some provisions traditionally recorded by entities may not be considered liabilities under the AASB Framework because:

In accordance with AASB 137 "Provisions, Contingent Liabilities and Contingent Assets" some present obligations are allowed to be disclosed in the notes to the financial statements.

Some researchers have found that firms can benefit from being in financial distress:

In determining the amount to be assigned to the equity component of a compound financial instrument, you must:

In terms of accounting treatment under AASB 132 debentures and bonds are the same thing:

All things being equal, firms would typically prefer to disclose low levels of debt because:

When measuring a liability at present values, the discount rate to be used, according to paragraph 47 of AASB 137, is:

An equitable or constructive obligation arises when:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financ

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluation and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

Accounting for Lease

Set-Off and Extinguishment of Debt

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in E

Accounting for Share-Based Payments

Accounting for Income Taxes

Cash-Flow Statements

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After Balance Sheet Date

Segment Reporting

Related-Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues Ii: Accounting for Minority Interests

Further Consolidation Issues Iii: Accounting for Indirect Ownershi

Further Consolidation Issues Iv: Accounting for Changes in the Deg

Accounting for Equity Investments

Accounting for Equity Investments

Accounting for Foreign Currency Transactions

Translation of the Accounts of Foreign Operations

Accounting for Corporate Social Responsibility

Filters