Question 1

A bonus share issue from a reserve:

Accepted Answer

A) increases assets and increases equity 
B) decreases the debt-to-equity ratio 
C) increases the number of shares on issue 
D) increases the market price per share 
A) increases assets and increases equity 
B) decreases the debt-to-equity ratio 
C) increases the number of shares on issue 
D) increases the market price per share C

Question 2

On 1 April 20X1 the directors of Davo Ltd resolved to pay shareholders an interim cash dividend of $0.35 per share on 1 May 20X1.Davo Ltd's financial year end is 30 June.Davo Ltd prepares monthly accounts.At 31 March 20X1, the equity section of Davo Ltd's balance sheet is as follows:
 $$\begin{array} { l r } 
&\$\
\text { Issued share capital (1 } 1000000 \text { shares) } & 2000000 \
\text { Retained profits } & 3800000 \
\text { Asset revaluation reserve } & 955000 \
\text { General reserve } & \underline{445000} \
\text { Total } & 7200000
\end{array}$$
-Show the format of the journal entry in the accounts for the month of April 20X1

Accepted Answer

A)  $\begin{array}{llcc}
  \text {  Accounts} &  \text {  Debit \$} & \text { Credit \$} \
 \text { Interim dividend } &X\
 \text { Interim dividend payable } &&X\
 \text {  } &\
 \text {  } &\
 \text {  } &\
\end{array}$ 
B)  $\begin{array}{lcc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Interim dividend } & x & \
\text { Bank } & & x
\end{array}$ 
C)  $\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Interim dividend payable } & \mathrm { x } & \
\text { Interim dividend } & & \mathrm { x }
\end{array}$ 
D)  $\begin{array}{lcc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Retained profits} & x & \
\text { Bank } & & x
\end{array}$ 
A)  $\begin{array}{llcc}
  \text {  Accounts} &  \text {  Debit \$} & \text { Credit \$} \
 \text { Interim dividend } &X\
 \text { Interim dividend payable } &&X\
 \text {  } &\
 \text {  } &\
 \text {  } &\
\end{array}$ 
B)  $\begin{array}{lcc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Interim dividend } & x & \
\text { Bank } & & x
\end{array}$ 
C)  $\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Interim dividend payable } & \mathrm { x } & \
\text { Interim dividend } & & \mathrm { x }
\end{array}$ 
D)  $\begin{array}{lcc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Retained profits} & x & \
\text { Bank } & & x
\end{array}$ A

Question 3

On 1 April 20X1 the directors of Davo Ltd resolved to pay shareholders an interim cash dividend of $0.35 per share on 1 May 20X1.Davo Ltd's financial year end is 30 June.Davo Ltd prepares monthly accounts.At 31 March 20X1, the equity section of Davo Ltd's balance sheet is as follows:
 $$\begin{array} { l r } 
&\$\
\text { Issued share capital (1 } 1000000 \text { shares) } & 2000000 \
\text { Retained profits } & 3800000 \
\text { Asset revaluation reserve } & 955000 \
\text { General reserve } & \underline{445000} \
\text { Total } & 7200000
\end{array}$$
-How would you calculate the balance of retained profits at 30 June 20X1?

Accepted Answer

A) $3 800 000 less $350 000 
B) $3 800 000 plus profits for April, May and June 20X1 less $350 000 
C) $3 800 000 plus profits for April, May and June 20X1 less $700 000 
D) $3 800 000 less $700 000 
A) $3 800 000 less $350 000 
B) $3 800 000 plus profits for April, May and June 20X1 less $350 000 
C) $3 800 000 plus profits for April, May and June 20X1 less $700 000 
D) $3 800 000 less $700 000 B

Question 4

Which of the following could be recorded as 'expenses' under AASB 101:
I.$\quad$ Cost of goods sold
II.$\quad$ Wages paid
III.$\quad$nterest paid
IV.$\quad$Fire damage costs

Accepted Answer

A) I only 
B) I and II only 
C) I, II and III only 
D) I, II, III and IV 
A) I only 
B) I and II only 
C) I, II and III only 
D) I, II, III and IV

Question 5

Instead of paying a cash dividend this year, more Goanna Ltd shares were issued to the existing shareholders of Goanna Ltd out of Goanna Ltd's profit.This action is called:

Accepted Answer

A) Establishing a sinking fund 
B) Capitalisation of reserves 
C) Capitalisation of profits 
D) Establishing a reserve fund 
A) Establishing a sinking fund 
B) Capitalisation of reserves 
C) Capitalisation of profits 
D) Establishing a reserve fund

Question 6

A company carrying accumulated losses can not pay a dividend.

Accepted Answer

A) True 
 B)False

Question 7

Under AASB 101 the income statement (called profit or loss statement in this text) does not require an amount called 'income' to be recorded anywhere in the statement.

Accepted Answer

A) True 
 B)False

Question 8

Under the Framework and AASB 101

Accepted Answer

A) revenue arises in the course of ordinary activities 
B) there is no test to distinguish ordinary activities from non-ordinary 
C) gains are other items of income that may or may not arise from ordinary activities 
D) all of the above 
A) revenue arises in the course of ordinary activities 
B) there is no test to distinguish ordinary activities from non-ordinary 
C) gains are other items of income that may or may not arise from ordinary activities 
D) all of the above

Question 9

The dividend equalisation reserve

Accepted Answer

A) is required by AASB 101 
B) is required by the Corporations Act, s.2M3 
C) is an example of a management discretionary reserve 
D) is required of certain companies by order of ASIC 
A) is required by AASB 101 
B) is required by the Corporations Act, s.2M3 
C) is an example of a management discretionary reserve 
D) is required of certain companies by order of ASIC

Question 10

The Corporations Act does not permit the payment of interest on capital.

Accepted Answer

A) True 
 B)False

Question 11

Dividends can be paid from which of the following accounts:

Accepted Answer

A) retained profits 
B) asset revaluation reserve 
C) paid-up capital 
D) A and B only 
A) retained profits 
B) asset revaluation reserve 
C) paid-up capital 
D) A and B only

Question 12

Which of the following statements is untrue

Accepted Answer

A) dividends already paid must be recognised 
B) dividends proposed before reporting date but neither declared nor yet paid must not be recognised in the reporting period just passed 
C) dividends proposed before reporting date but neither declared nor yet paid must be included in the reporting period just passed by means of a contingent liability recorded in the notes 
D) dividends proposed after reporting date must not be recognised in the reporting period just passed 
A) dividends already paid must be recognised 
B) dividends proposed before reporting date but neither declared nor yet paid must not be recognised in the reporting period just passed 
C) dividends proposed before reporting date but neither declared nor yet paid must be included in the reporting period just passed by means of a contingent liability recorded in the notes 
D) dividends proposed after reporting date must not be recognised in the reporting period just passed

Question 13

Instead of paying a cash dividend this year, more Goanna Ltd shares were issued to the existing shareholders of Goanna Ltd out of Goanna Ltd's asset revaluation reserve which accumulates revaluation increments of property, plant and equipment.This action is called:

Accepted Answer

A) Establishing a sinking fund 
B) Capitalisation of reserves 
C) Capitalisation of profits 
D) Establishing a reserve fund 
A) Establishing a sinking fund 
B) Capitalisation of reserves 
C) Capitalisation of profits 
D) Establishing a reserve fund

Question 14

Under AASB 101 fire damage expense must be recorded as a loss and not as an ordinary expense.

Accepted Answer

A) True 
 B)False

Question 15

Under the Framework and AASB 101 'income and expense' equals

Accepted Answer

A) revenue + gains - expenses - losses 
B) revenue - expenses 
C) revenue - losses 
D) none of the above 
A) revenue + gains - expenses - losses 
B) revenue - expenses 
C) revenue - losses 
D) none of the above

Question 16

In the comprehensive profit statement the amount 'Total comprehensive profit' is composed of

Accepted Answer

A) all income and expense amounts incurred by the entity plus direct increases or decreases to equity 
B) all income and expense items incurred by the entity 
C) the sum of direct debit or direct credit items recognised within the statement 
D) the sum of all profit and loss items shown in the profit and loss statement plus the sum of other comprehensive profit. 
A) all income and expense amounts incurred by the entity plus direct increases or decreases to equity 
B) all income and expense items incurred by the entity 
C) the sum of direct debit or direct credit items recognised within the statement 
D) the sum of all profit and loss items shown in the profit and loss statement plus the sum of other comprehensive profit.

Question 17

In which of the following ways can a 'reserve' be established in the balance sheet?
I.$\quad$ By a decision of management to transfer an amount from retained profits
II.$\quad$ By agreement in a debt contract
III.$\quad$By the provision of an accounting standard

Accepted Answer

A) I only 
B) I and III only 
C) II and III only 
D) I, II and III 
A) I only 
B) I and III only 
C) II and III only 
D) I, II and III

Question 18

Under AASB 101, in the profit or loss statement (income statement) the amount 'Profit or loss' is

Accepted Answer

A) the total of all revenue, expense, gain and loss items recognised by the reporting entity 
B) the total of revenue, expense, gain and loss items that appear in the profit or loss statement 
C) the total of revenue and expense items that appear in the profit or loss statement 
D) none of the above 
A) the total of all revenue, expense, gain and loss items recognised by the reporting entity 
B) the total of revenue, expense, gain and loss items that appear in the profit or loss statement 
C) the total of revenue and expense items that appear in the profit or loss statement 
D) none of the above

Question 19

Regarding the Corporations Act's replaceable rule for dividend payments, which of the following statements is untrue?

Accepted Answer

A) directors determine the amount, timing and method of payment of a dividend 
B) interest is not payable on dividends 
C) shareholders have no right that a dividend be paid 
D) an interim dividend payable can not be cancelled by the directors 
A) directors determine the amount, timing and method of payment of a dividend 
B) interest is not payable on dividends 
C) shareholders have no right that a dividend be paid 
D) an interim dividend payable can not be cancelled by the directors

Question 20

Capitalisation of profits results in:

Accepted Answer

A) no change to retained profits 
B) a decrease in assets and an increase in issued capital 
C) increasing total liabilities 
D) no change to total shareholder's equity 
A) no change to retained profits 
B) a decrease in assets and an increase in issued capital 
C) increasing total liabilities 
D) no change to total shareholder's equity

Exam 4: Profits, Reserve and Distributions to Owners

A bonus share issue from a reserve:

Which of the following could be recorded as 'expenses' under AASB 101: I. \quad Cost of goods sold II. \quad Wages paid III. \quad nterest paid IV. \quad Fire damage costs

Instead of paying a cash dividend this year, more Goanna Ltd shares were issued to the existing shareholders of Goanna Ltd out of Goanna Ltd's profit.This action is called:

A company carrying accumulated losses can not pay a dividend.

Under AASB 101 the income statement (called profit or loss statement in this text) does not require an amount called 'income' to be recorded anywhere in the statement.

Under the Framework and AASB 101

The dividend equalisation reserve

The Corporations Act does not permit the payment of interest on capital.

Dividends can be paid from which of the following accounts:

Which of the following statements is untrue

Instead of paying a cash dividend this year, more Goanna Ltd shares were issued to the existing shareholders of Goanna Ltd out of Goanna Ltd's asset revaluation reserve which accumulates revaluation increments of property, plant and equipment.This action is called:

Under AASB 101 fire damage expense must be recorded as a loss and not as an ordinary expense.

Under the Framework and AASB 101 'income and expense' equals

In the comprehensive profit statement the amount 'Total comprehensive profit' is composed of

In which of the following ways can a 'reserve' be established in the balance sheet? I. \quad By a decision of management to transfer an amount from retained profits II. \quad By agreement in a debt contract III. \quad By the provision of an accounting standard

Under AASB 101, in the profit or loss statement (income statement) the amount 'Profit or loss' is

Regarding the Corporations Act's replaceable rule for dividend payments, which of the following statements is untrue?

Capitalisation of profits results in:

Companies and Corporate Regulation

Objectives of Company Reporting, Conceptual Elements and Terminology

Forming a Company and Issuing Shares

Reorganisation of Share Capital

Debt Securities

Foreign Currency Transactions and an Introduction to Hedging

Advanced Asset and Liability Issues

Income Tax

Reports and Disclosures I: Overview

Reports and Disclosures Ii: the Financial Statements

Receivership and Voluntary Administration

Liquidations

External Administration Reports and Accounts

Investments in New Assets; Introduction to Business Combinations and Associates

The Corporate Group

Acquisition Method Introduction and Substitution

Acquisition Method Application After Control Date

Intra-Group Transactions

Direct Non-Controlling Interest

Changes to Parent Investment in Subsidiaries

Indirect Interest

Translation of Foreign Currency Statements

Consolidated Cash Flow Statements

Equity Accounting Expanded and Joint Ventures

Segment Reporting

Filters

Which of the following could be recorded as 'expenses' under AASB 101: I. $\quad$ Cost of goods sold II. $\quad$ Wages paid III. $\quad$ nterest paid IV. $\quad$ Fire damage costs

In which of the following ways can a 'reserve' be established in the balance sheet? I. $\quad$ By a decision of management to transfer an amount from retained profits II. $\quad$ By agreement in a debt contract III. $\quad$ By the provision of an accounting standard