Question 1

Unless the probability of any outflow in a settlement is remote,an entity needs to disclose for each class of contingent liability:

Accepted Answer

A)  the possibility of any reimbursement. 
B)  an indication of the timing and amount uncertainties. 
C)  an estimate of its financial effect. 
D)  All of the given answers must be disclosed. 
A)  the possibility of any reimbursement. 
B)  an indication of the timing and amount uncertainties. 
C)  an estimate of its financial effect. 
D)  All of the given answers must be disclosed.

Question 2

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 3

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,differentiate provisions from accruals and provide one example for each type of liability.

Accepted Answer

Provisions, accruals, and contingent lia

Question 4

One recognised approach to reducing the level of debt that has been adopted in the past was to:

Accepted Answer

A)  attempt to report the debt as equity, often in the form of preference shares. 
B)  create reserves and draw on them later as a source of funding. 
C)  treat as many liabilities as possible as provisions. 
D)  record liabilities as an increase in cash and a decrease in revenues. 
A)  attempt to report the debt as equity, often in the form of preference shares. 
B)  create reserves and draw on them later as a source of funding. 
C)  treat as many liabilities as possible as provisions. 
D)  record liabilities as an increase in cash and a decrease in revenues.

Question 5

The market will only pay a premium for debentures if the par value of those debentures is lower than the market interest rate.

Accepted Answer

A) True 
 B)False

Question 6

If liabilities are disclosed as current on the basis of the entity's operating cycle,and this cycle is greater than 12 months it should:

Accepted Answer

A)  adjust the statement of financial position for a 12 month period. 
B)  disclose the length of the operating cycle. 
C)  apply the 12-month test. 
D)  None of the given answers are correct. 
A)  adjust the statement of financial position for a 12 month period. 
B)  disclose the length of the operating cycle. 
C)  apply the 12-month test. 
D)  None of the given answers are correct.

Question 7

A present obligation,as one of the criteria for recognising a liability,implies:

Accepted Answer

A)  there must be a legal obligation. 
B)  a legally binding contractual arrangement between two parties: the entity and another party. 
C)  the involvement of two separate parties-the entity and another party-of which the identity of the latter needs not necessarily to be known. 
D)  the involvement of two separate parties-the entity and another party-of which the identity of the latter must be known. 
A)  there must be a legal obligation. 
B)  a legally binding contractual arrangement between two parties: the entity and another party. 
C)  the involvement of two separate parties-the entity and another party-of which the identity of the latter needs not necessarily to be known. 
D)  the involvement of two separate parties-the entity and another party-of which the identity of the latter must be known.

Question 8

Explain in what situations,and why,some provisions should be measured at present values.

Accepted Answer

Some provisions should be measured at pr

Question 9

The present obligation component of a liability must be based on:

Accepted Answer

A)  a legal obligation only. 
B)  a social obligation. 
C)  a contractual obligation. 
D)  none of the given answers. 
A)  a legal obligation only. 
B)  a social obligation. 
C)  a contractual obligation. 
D)  none of the given answers.

Question 10

AASB 13 defines fair value measurement as:

Accepted Answer

A)  the price that would be received to buy an asset or received to transfer a liability in an orderly transaction between market participants at the due date. 
B)  the price that would be paid to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the due date. 
C)  the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 
D)  the price that would be estimated to sell an asset or to transfer a liability in an orderly transaction between market participants at the measurement date. 
A)  the price that would be received to buy an asset or received to transfer a liability in an orderly transaction between market participants at the due date. 
B)  the price that would be paid to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the due date. 
C)  the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 
D)  the price that would be estimated to sell an asset or to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 11

Which of the following provisions satisfy the requirements to be recognised as a liability under AASB 137?

Accepted Answer

A)  provisions for repairs and overhauls 
B)  provisions for warranties 
C)  provisions for maintenance 
D)  provisions for refurbishment costs 
A)  provisions for repairs and overhauls 
B)  provisions for warranties 
C)  provisions for maintenance 
D)  provisions for refurbishment costs

Question 12

A debenture will be issued at par value:

Accepted Answer

A)  because that is the offer price; if the rate offered is too low the offer will be under-subscribed, so those who take it up will receive more interest. 
B)  on most occasions, because management is careful to issue the debentures at an amount close to the market rate. 
C)  on those rare occasions when the coupon rate is the same as the market rate. 
D)  on those occasions when the offer rate is equal to the coupon rate. 
A)  because that is the offer price; if the rate offered is too low the offer will be under-subscribed, so those who take it up will receive more interest. 
B)  on most occasions, because management is careful to issue the debentures at an amount close to the market rate. 
C)  on those rare occasions when the coupon rate is the same as the market rate. 
D)  on those occasions when the offer rate is equal to the coupon rate.

Question 13

From the following extract of an amortisation schedule pertaining to a compound financial instrument,what is the net liability (assuming the debenture has not yet been repaid),at the end of Period 10? $$\begin{array} { | c | r | r | r | r | r | r | } 
\hline \text { Period } & \begin{array} { c } 
\text { Opening } \
\text { liability }
\end{array} & \begin{array} { c } 
\text { Effective } \
\text { interest }
\end{array} & \text { Coupon rate } & \begin{array} { c } 
\text { Discount } \
\text { amortisation }
\end{array} & \begin{array} { c } 
\text { Balance of } \
\text { discount }
\end{array} & \text { Net liability } \
\hline 0 & & & & & 736055 & 9263945 \
\hline 1 & 9263945 & 555837 & 500000 & 55837 & 680218 & 9319782 \
\hline 2 & 9319782 & 559187 & 500000 & 59187 & 621031 & 9378969 \
\hline 3 & 9378969 & 562738 & 500000 & 62738 & 558293 & 9441707 \
\hline
\end{array}$$

Accepted Answer

A)  Nil 
B)  9 500 000 
C)  9 905 582 
D)  10 000 000 
A)  Nil 
B)  9 500 000 
C)  9 905 582 
D)  10 000 000

Question 14

An entity shall classify a liability as current when it holds the liability primarily for the purpose of trading.

Accepted Answer

A) True 
 B)False

Question 15

Discuss the criteria required to classify a liability as current.

Accepted Answer

Liabilities are classified as current if

Question 16

Spoton Co Ltd issues $5 million in 2-year,8%,semi-annual coupon debentures to the public.The market required rate of return is also 8%.The money is received on application and the debentures are allotted on the same day: 30 June 2013.What are the journal entries to record (a)the receipt of funds and allotment of debentures on 30 June 2013,(b)the payment of interest on 31 December 2013 and (c)the redemption of the debentures on 30 June 2015?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 17

Discuss the substance-over-firm approach in AASB 132 Financial Instruments.

Accepted Answer

The substance-over-form approach in AASB

Question 18

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. 
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.

Question 19

Edgar Ltd issues $7 million in 6-year,10%,semi-annual coupon debentures.The rate of return required by the market is 8% per annum.What is the journal entry to record the first payment of interest assuming using the effective-interest method to amortise any discount or premium (rounded to the nearest dollar)?

Accepted Answer

A) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 287306 & \
\hline \mathrm { Dr } & \text { Debenture } & 62694 & \
\hline \mathrm { Cr } & \text { Cash } & & 350000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | r | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 412694 & \
\hline \mathrm { Cr } & \text { Debenture } & & 62694 \
\hline \mathrm { Cr } & \text { Cash } & & 350000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | r | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 350000 & \
\hline \mathrm { Cr } & \text { Debenture } & & 43722 \
\hline \mathrm { Cr } & \text { Cash } & & 306278 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 306278 & \
\hline \mathrm { Dr } & \text { Debenture } & 43722 & \
\hline \mathrm { Cr } & \text { Cash } & & 350000 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 287306 & \
\hline \mathrm { Dr } & \text { Debenture } & 62694 & \
\hline \mathrm { Cr } & \text { Cash } & & 350000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | r | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 412694 & \
\hline \mathrm { Cr } & \text { Debenture } & & 62694 \
\hline \mathrm { Cr } & \text { Cash } & & 350000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | r | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 350000 & \
\hline \mathrm { Cr } & \text { Debenture } & & 43722 \
\hline \mathrm { Cr } & \text { Cash } & & 306278 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 306278 & \
\hline \mathrm { Dr } & \text { Debenture } & 43722 & \
\hline \mathrm { Cr } & \text { Cash } & & 350000 \
\hline
\end{array}$$

Question 20

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 statement of financial position, with a 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 financial statement when the amount of the obligation cannot be measured with sufficient reliability. 
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. 
A)  Contingent liabilities are to be recognised as a separate category in the statement of financial position, with a 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 financial statement when the amount of the obligation cannot be measured with sufficient reliability. 
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.

Exam 10: An Overview of Accounting for Liabilities

Unless the probability of any outflow in a settlement is remote,an entity needs to disclose for each class of contingent liability:

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.

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,differentiate provisions from accruals and provide one example for each type of liability.

One recognised approach to reducing the level of debt that has been adopted in the past was to:

The market will only pay a premium for debentures if the par value of those debentures is lower than the market interest rate.

If liabilities are disclosed as current on the basis of the entity's operating cycle,and this cycle is greater than 12 months it should:

A present obligation,as one of the criteria for recognising a liability,implies:

Explain in what situations,and why,some provisions should be measured at present values.

The present obligation component of a liability must be based on:

AASB 13 defines fair value measurement as:

Which of the following provisions satisfy the requirements to be recognised as a liability under AASB 137?

A debenture will be issued at par value:

An entity shall classify a liability as current when it holds the liability primarily for the purpose of trading.

Discuss the criteria required to classify a liability as current.

Discuss the substance-over-firm approach in AASB 132 Financial Instruments.

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

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

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

Accounting for Leases

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 Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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