Question 1

Preference shares,as noted in AASB 132:

Accepted Answer

A)  Should be regarded as debt when redemption is at the option of the holder or on a specified date. 
B)  Will be classified as debt or equity based on their legal form rather than the substance of the financial instrument. 
C)  Exhibit the characteristics of equity when they are non-redeemable. 
D)  Will have their classification as debt or equity affected by the intention to make distributions in the future. 
E)  All of the given answers. 
A)  Should be regarded as debt when redemption is at the option of the holder or on a specified date. 
B)  Will be classified as debt or equity based on their legal form rather than the substance of the financial instrument. 
C)  Exhibit the characteristics of equity when they are non-redeemable. 
D)  Will have their classification as debt or equity affected by the intention to make distributions in the future. 
E)  All of the given answers.

Question 2

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. 
E)  All of the given answers. 
A)  Provisions for repairs and overhauls. 
B)  Provisions for warranties. 
C)  Provisions for maintenance. 
D)  Provisions for refurbishment costs. 
E)  All of the given answers.

Question 3

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 4

Convertible notes may be best described as having characteristics of both liabilities and bonds:

Accepted Answer

A) True 
 B)False

Question 5

When determining whether a liability exists,the intentions or actions of management need to be taken into account:

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  Nil. 
B)  9,500,000. 
C)  9,905,582. 
D)  10,000,000. 
E)  Cannot determine from the above information. 
A)  Nil. 
B)  9,500,000. 
C)  9,905,582. 
D)  10,000,000. 
E)  Cannot determine from the above information.

Question 7

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 8

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 9

Which of the following statements is ?consistent with the positive accounting theory paradigm?

Accepted Answer

A)  Managers avoid future sacrifice of economic benefits debt covenants when the company is close to violation of debt covenants. 
B)  Managers avoid constructive obligations in the presence of accounting based debt covenants even though there is no realistic alternative to making future sacrifice of economic benefits. 
C)  Managers choose accounting methods that will decrease income to reduce the probability of debt covenant violation. 
D)  Managers avoid income increasing accounting methods to reduce the probability of debt covenant violation. 
E)  All of the given answers 
A)  Managers avoid future sacrifice of economic benefits debt covenants when the company is close to violation of debt covenants. 
B)  Managers avoid constructive obligations in the presence of accounting based debt covenants even though there is no realistic alternative to making future sacrifice of economic benefits. 
C)  Managers choose accounting methods that will decrease income to reduce the probability of debt covenant violation. 
D)  Managers avoid income increasing accounting methods to reduce the probability of debt covenant violation. 
E)  All of the given answers

Question 10

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.

Question 11

From the following extract of an amortisation schedule pertaining to a compound financial instrument,what is the effective-interest rate embodied in the instrument?

Accepted Answer

A)  6 per cent. 
B)  5 per cent. 
C)  Variable, as shown in the table it has increased from 5.5837 per cent in period 1 to 6.2738 per cent in period 3. 
D)  4 per cent. 
E)  Cannot determine from the above information. 
A)  6 per cent. 
B)  5 per cent. 
C)  Variable, as shown in the table it has increased from 5.5837 per cent in period 1 to 6.2738 per cent in period 3. 
D)  4 per cent. 
E)  Cannot determine from the above information.

Question 12

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 13

A necessary condition to recognise a present obligation in the financial statements is that the identity of the party to whom the present obligation is owed must be known.

Accepted Answer

A) True 
 B)False

Question 14

The defining characteristic of a "provision" as opposed to other liabilities is that the existence of an obligation is uncertain:

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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 18

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

Exam 10: An Overview of Accounting for Liabilities

Preference shares,as noted in AASB 132:

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

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

Convertible notes may be best described as having characteristics of both liabilities and bonds:

When determining whether a liability exists,the intentions or actions of management need to be taken into account:

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?

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.

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

Which of the following statements is ?consistent with the positive accounting theory paradigm?

An equitable or constructive obligation arises when:

From the following extract of an amortisation schedule pertaining to a compound financial instrument,what is the effective-interest rate embodied in the instrument?

Examples of contingent liabilities include:

A necessary condition to recognise a present obligation in the financial statements is that the identity of the party to whom the present obligation is owed must be known.

The defining characteristic of a "provision" as opposed to other liabilities is that the existence of an obligation is uncertain:

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

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:

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:

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

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