Question 1

A example of a source of medium-term finance is:

Accepted Answer

A)  hire purchase. 
B)  debentures. 
C)  factoring. 
D)  equity finance. 
A)  hire purchase. 
B)  debentures. 
C)  factoring. 
D)  equity finance. A

Question 2

AKP enterprises have negotiated a lease for a photocopier. The useful life of the asset is eight years. The lease is non-cancellable and provides that the term of the lease is over three years with the present value of the lease payments being 55% of the fair value. Title will not pass at the end of the lease period. Using the criteria in AASB 117, the lease would definitely constitute a finance lease.

Accepted Answer

A) True 
 B)False  False

Question 3

The mix of debt finance and equity finance for a given entity is known as gearing.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following terms best describes a firm-specific risk that an entity faces, as opposed to an industry-specific risk?

Accepted Answer

A)  Investment risk 
B)  Financial risk 
C)  Market risk 
D)  Business risk 
A)  Investment risk 
B)  Financial risk 
C)  Market risk 
D)  Business risk

Question 5

A factoring company is a finance company that specialises in providing a service for the collection of payments from accounts receivable.

Accepted Answer

A) True 
 B)False

Question 6

A major difference between accounting for an operating lease and a finance lease, in the books of the lessee, is that a finance lease will create an asset and a liability, whereas an operating lease will be treated as an expense.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements regarding tax-effect accounting is incorrect?

Accepted Answer

A)  The tax-effect method of accounting for income tax determines that temporary differences may arise, resulting in the recognition of either a liability or an asset. 
B)  The tax-effect method for calculating income tax expense is where the taxable income is multiplied by the tax rate. 
C)  A tax loss can only be carried forward as a future tax benefit if it is probable that the entity will earn taxable income in the future. 
D)  A deferred tax liability will occur where taxable income is less than accounting profit in the current period. 
A)  The tax-effect method of accounting for income tax determines that temporary differences may arise, resulting in the recognition of either a liability or an asset. 
B)  The tax-effect method for calculating income tax expense is where the taxable income is multiplied by the tax rate. 
C)  A tax loss can only be carried forward as a future tax benefit if it is probable that the entity will earn taxable income in the future. 
D)  A deferred tax liability will occur where taxable income is less than accounting profit in the current period.

Question 8

Deep Lake Lodging Company was established at the beginning of the financial year with the following capital:   What is the amount of equity financing for this firm?

Accepted Answer

A)  $10 000 
B)  $40 000 
C)  $46 000 
D)  $76 000 
A)  $10 000 
B)  $40 000 
C)  $46 000 
D)  $76 000

Question 9

Partnerships may have more ability to raise equity finance than sole proprietorships, as partnerships tend to have more people to contribute funds, but limited companies have a wider range of equity options than partnerships.

Accepted Answer

A) True 
 B)False

Question 10

Dividends on ordinary shares are:

Accepted Answer

A)  expensed when paid. 
B)  expensed when incurred. 
C)  expensed at year end. 
D)  a reduction of retained profits. 
A)  expensed when paid. 
B)  expensed when incurred. 
C)  expensed at year end. 
D)  a reduction of retained profits.

Question 11

The Shifting Sands Company has negotiated to lease a piece of equipment. The equipment has a useful life of 10 years. The lease is non-cancellable but there is only a minor penalty if the lessee returns the equipment before the expiry of the lease. The lease terms provide that the lease is over five years and the present value of the minimum lease payments is 60% of the fair value of the asset at the commencement of the lease. Shifting Sands records the lease payments as an expense in the statement of comprehensive income. Based on this information, which of the following statements is correct?

Accepted Answer

A)  Assets and liabilities are understated as the lease should be a finance lease. 
B)  Assets and liabilities are not affected as the lease is an operating lease. 
C)  The non-cancellable nature of the lease determines that it should be a finance lease. 
D)  There is insufficient information to determine whether the lease is a finance or an operating lease. 
A)  Assets and liabilities are understated as the lease should be a finance lease. 
B)  Assets and liabilities are not affected as the lease is an operating lease. 
C)  The non-cancellable nature of the lease determines that it should be a finance lease. 
D)  There is insufficient information to determine whether the lease is a finance or an operating lease.

Question 12

In an entity that is highly geared, the effect of a decrease in profits or an increase in interest rates will have a greater negative impact on returns to shareholders than it will on an entity that is not so highly geared.

Accepted Answer

A) True 
 B)False

Question 13

Identify the correct statement below.

Accepted Answer

A)  Bank overdrafts are classified as long-term loans in Australia. 
B)  Commitments are disclosed on the statement of comprehensive income because they affect net profit but not cash flow. 
C)  Finance leases are accounted for as if the leased items had been purchased. 
D)  The expense associated with operating leases is reported on the cash flow statement under the category of investing activities. 
A)  Bank overdrafts are classified as long-term loans in Australia. 
B)  Commitments are disclosed on the statement of comprehensive income because they affect net profit but not cash flow. 
C)  Finance leases are accounted for as if the leased items had been purchased. 
D)  The expense associated with operating leases is reported on the cash flow statement under the category of investing activities.

Question 14

Trade credit is the finance provided by suppliers from selling goods on credit.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not an example of short-term finance?

Accepted Answer

A)  Trade credit 
B)  Factoring 
C)  Finance lease 
D)  Bank overdraft 
A)  Trade credit 
B)  Factoring 
C)  Finance lease 
D)  Bank overdraft

Question 16

AKP Ltd depreciates a non-current asset using the straight-line method. Tax law stipulates that the asset should be depreciated using the reducing-balance method at 1.5 times the straight line rate. Under normal circumstances, which of the following statements is correct?

Accepted Answer

A)  After year 1, the tax base of the asset exceeds the accounting base and will give rise to a deferred tax liability. 
B)  After year 1, the tax base of the asset is less than the accounting base and will give rise to a deferred tax liability. 
C)  After year 1, the tax base of the asset exceeds the accounting base and will give rise to a deferred tax asset. 
D)  After year 1, the tax base of the asset exceeds the accounting base and will give rise to a tax asset. 
A)  After year 1, the tax base of the asset exceeds the accounting base and will give rise to a deferred tax liability. 
B)  After year 1, the tax base of the asset is less than the accounting base and will give rise to a deferred tax liability. 
C)  After year 1, the tax base of the asset exceeds the accounting base and will give rise to a deferred tax asset. 
D)  After year 1, the tax base of the asset exceeds the accounting base and will give rise to a tax asset.

Question 17

Under a hire-purchase agreement, ownership of the asset remains with the financier until all payments have been received.

Accepted Answer

A) True 
 B)False

Question 18

The notion of substance over form may result in certain types of preference shares being classified as debt not equity.

Accepted Answer

A) True 
 B)False

Question 19

Distinguish between an operating lease and a finance lease and describe how the separate classes of lease are accounted for in the books of the lessee.

Accepted Answer

An operating lease is a strict rental ag

Question 20

The primary sources of revenue for a factoring company are the interest earned on the finance provided and the fees for managing the collection of debt.

Accepted Answer

A) True 
 B)False

A example of a source of medium-term finance is:

The mix of debt finance and equity finance for a given entity is known as gearing.

Which of the following terms best describes a firm-specific risk that an entity faces, as opposed to an industry-specific risk?

A factoring company is a finance company that specialises in providing a service for the collection of payments from accounts receivable.

A major difference between accounting for an operating lease and a finance lease, in the books of the lessee, is that a finance lease will create an asset and a liability, whereas an operating lease will be treated as an expense.

Which of the following statements regarding tax-effect accounting is incorrect?

Deep Lake Lodging Company was established at the beginning of the financial year with the following capital: What is the amount of equity financing for this firm?

Partnerships may have more ability to raise equity finance than sole proprietorships, as partnerships tend to have more people to contribute funds, but limited companies have a wider range of equity options than partnerships.

Dividends on ordinary shares are:

In an entity that is highly geared, the effect of a decrease in profits or an increase in interest rates will have a greater negative impact on returns to shareholders than it will on an entity that is not so highly geared.

Identify the correct statement below.

Trade credit is the finance provided by suppliers from selling goods on credit.

Which of the following is not an example of short-term finance?

AKP Ltd depreciates a non-current asset using the straight-line method. Tax law stipulates that the asset should be depreciated using the reducing-balance method at 1.5 times the straight line rate. Under normal circumstances, which of the following statements is correct?

Under a hire-purchase agreement, ownership of the asset remains with the financier until all payments have been received.

The notion of substance over form may result in certain types of preference shares being classified as debt not equity.

Distinguish between an operating lease and a finance lease and describe how the separate classes of lease are accounted for in the books of the lessee.

The primary sources of revenue for a factoring company are the interest earned on the finance provided and the fees for managing the collection of debt.

Introduction to Accounting

Types of Organisations and the Financial Reporting Framework

Ethics and Corporate Governance

Wealth and the Measurement of Profit

Presentation of Financial Position and the Worksheet

Presentation of Financial Performance and the Worksheet

Presentation of Cash Flows

Accounting for Selected Assets

Financial Statement Analysis

Worksheet to Debits and Credits

An Introduction to Management Accounting: a Strategic Perspective

Performance Measurement and the Balanced Scorecard

Costs and Cost Behaviour

Budgets

Cost-Volume-Profit Analysis

Accounting for Decision Making: With and Without Resource Constraints

Capital Investment Decisions

Filters

Exam 9: Liabilities and Sources of Financing

A example of a source of medium-term finance is:

The mix of debt finance and equity finance for a given entity is known as gearing.

Which of the following terms best describes a firm-specific risk that an entity faces, as opposed to an industry-specific risk?

A factoring company is a finance company that specialises in providing a service for the collection of payments from accounts receivable.

A major difference between accounting for an operating lease and a finance lease, in the books of the lessee, is that a finance lease will create an asset and a liability, whereas an operating lease will be treated as an expense.

Which of the following statements regarding tax-effect accounting is incorrect?

Deep Lake Lodging Company was established at the beginning of the financial year with the following capital: What is the amount of equity financing for this firm?

Partnerships may have more ability to raise equity finance than sole proprietorships, as partnerships tend to have more people to contribute funds, but limited companies have a wider range of equity options than partnerships.

Dividends on ordinary shares are:

In an entity that is highly geared, the effect of a decrease in profits or an increase in interest rates will have a greater negative impact on returns to shareholders than it will on an entity that is not so highly geared.

Identify the correct statement below.

Trade credit is the finance provided by suppliers from selling goods on credit.

Which of the following is not an example of short-term finance?

AKP Ltd depreciates a non-current asset using the straight-line method. Tax law stipulates that the asset should be depreciated using the reducing-balance method at 1.5 times the straight line rate. Under normal circumstances, which of the following statements is correct?

Under a hire-purchase agreement, ownership of the asset remains with the financier until all payments have been received.

The notion of substance over form may result in certain types of preference shares being classified as debt not equity.

Distinguish between an operating lease and a finance lease and describe how the separate classes of lease are accounted for in the books of the lessee.

The primary sources of revenue for a factoring company are the interest earned on the finance provided and the fees for managing the collection of debt.

Introduction to Accounting

Types of Organisations and the Financial Reporting Framework

Ethics and Corporate Governance

Wealth and the Measurement of Profit

Presentation of Financial Position and the Worksheet

Presentation of Financial Performance and the Worksheet

Presentation of Cash Flows

Accounting for Selected Assets

Financial Statement Analysis

Worksheet to Debits and Credits

An Introduction to Management Accounting: a Strategic Perspective

Performance Measurement and the Balanced Scorecard

Costs and Cost Behaviour

Budgets

Cost-Volume-Profit Analysis

Accounting for Decision Making: With and Without Resource Constraints

Capital Investment Decisions

Filters