Question 1

The most correct reason of why residual loss is incurred is:

Accepted Answer

A)  principals do not take any actions to control agents' behaviours. 
B)  agents do not always act in the best interest of principals. 
C)  it is too costly for principals to completely monitor agents' behaviours. 
D)  agents are rational wealth maximisers. 
A)  principals do not take any actions to control agents' behaviours. 
B)  agents do not always act in the best interest of principals. 
C)  it is too costly for principals to completely monitor agents' behaviours. 
D)  agents are rational wealth maximisers.

Question 2

An example of bonding costs is:

Accepted Answer

A)  auditor's fees. 
B)  cost of implementing a management remuneration plan. 
C)  cost of preparing quarterly financial reports. 
D)  cost of setting up company's code of conducts. 
A)  auditor's fees. 
B)  cost of implementing a management remuneration plan. 
C)  cost of preparing quarterly financial reports. 
D)  cost of setting up company's code of conducts.

Question 3

Which of the following problems arises within owner-manager agency relationships?
$$\begin{array} { l l l } 
\text { I. }  \text { Risk aversion } & \text { III. Clan delution } \
\text { II. Asset substitution } & \text { IV. } \text { Dividend retention }
\end{array}$$

Accepted Answer

A)  I and III. 
B)  I and IV. 
C)  II and III. 
D)  II and IV. 
A)  I and III. 
B)  I and IV. 
C)  II and III. 
D)  II and IV.

Question 4

The following restrictions may be included in a debt covenant, except:

Accepted Answer

A)  restriction in the amount of dividends distributed as a percentage of profit. 
B)  restriction in using fair value to measure value of assets. 
C)  restriction in undertaking mergers and takeovers. 
D)  restriction in the maximum level of borrowings. 
A)  restriction in the amount of dividends distributed as a percentage of profit. 
B)  restriction in using fair value to measure value of assets. 
C)  restriction in undertaking mergers and takeovers. 
D)  restriction in the maximum level of borrowings.

Question 5

The problem of 'underinvestment' arises when managers are reluctant to undertaken projects with positive net present value because:

Accepted Answer

A)  managers prefer less risk than do lenders. 
B)  the projects lead to increased funds available to lenders. 
C)  it would adversely affect managers' bonus payments. 
D)  managers prefer to maintain a greater level of funds within the entity. 
A)  managers prefer less risk than do lenders. 
B)  the projects lead to increased funds available to lenders. 
C)  it would adversely affect managers' bonus payments. 
D)  managers prefer to maintain a greater level of funds within the entity.

Question 6

Which of the following statements is correct?

Accepted Answer

A)  Accounting is only concerned with recording transactions and does not involve human behaviours. 
B)  Positive theories provide recommendations about what should happen. 
C)  Inductive reasoning starts with objective setting. 
D)  The Conceptual Framework is developed through a deductive approach. 
A)  Accounting is only concerned with recording transactions and does not involve human behaviours. 
B)  Positive theories provide recommendations about what should happen. 
C)  Inductive reasoning starts with objective setting. 
D)  The Conceptual Framework is developed through a deductive approach.

Question 7

Under the debt hypothesis:

Accepted Answer

A)  managers prefer to have more remuneration. 
B)  managers' interests are more aligned with those of lenders than with those of shareholders. 
C)  managers of entities with high leverage are likely to choose accounting policies that increase profit and equity. 
D)  managers do not have discretion in choosing accounting policies. 
A)  managers prefer to have more remuneration. 
B)  managers' interests are more aligned with those of lenders than with those of shareholders. 
C)  managers of entities with high leverage are likely to choose accounting policies that increase profit and equity. 
D)  managers do not have discretion in choosing accounting policies.

Question 8

A market is efficient if:

Accepted Answer

A)  investors are able to earn profits by trading on information. 
B)  it takes time for market to adjust to new information. 
C)  share prices fully reflect available information about the shares. 
D)  available information can be used to earn returns beyond those that compensate for the risk involved. 
A)  investors are able to earn profits by trading on information. 
B)  it takes time for market to adjust to new information. 
C)  share prices fully reflect available information about the shares. 
D)  available information can be used to earn returns beyond those that compensate for the risk involved.

Question 9

Considering whether to use historical cost or fair value relates to which of the following components in accounting policy decisions?

Accepted Answer

A)  Definition 
B)  Recognition 
C)  Measurement 
D)  Disclosure 
A)  Definition 
B)  Recognition 
C)  Measurement 
D)  Disclosure

Question 10

Which of the following statements about asset substitution is incorrect?

Accepted Answer

A)  Managers have incentives to use debts to invest in higher-risk assets. 
B)  When managers invest in higher-risk projects, lenders would share higher returns earned from the projects. 
C)  The problem of asset substitution can be reduced by having a debt covenant that restricts investment opportunities of the entity. 
D)  All of the options are correct. 
A)  Managers have incentives to use debts to invest in higher-risk assets. 
B)  When managers invest in higher-risk projects, lenders would share higher returns earned from the projects. 
C)  The problem of asset substitution can be reduced by having a debt covenant that restricts investment opportunities of the entity. 
D)  All of the options are correct.

The most correct reason of why residual loss is incurred is:

An example of bonding costs is:

Which of the following problems arises within owner-manager agency relationships? I. Risk aversion III. Clan delution II. Asset substitution IV. Dividend retention

The following restrictions may be included in a debt covenant, except:

The problem of 'underinvestment' arises when managers are reluctant to undertaken projects with positive net present value because:

Which of the following statements is correct?

Under the debt hypothesis:

A market is efficient if:

Considering whether to use historical cost or fair value relates to which of the following components in accounting policy decisions?

Which of the following statements about asset substitution is incorrect?

Accounting Regulation and the Conceptual Framework

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Translation of the Financial Statements of Foreign Entities

Employee Benefits

Inventories

Property, Plant and Equipment

Leases

Understanding Australian Accounting Standards

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Business Combinations

Consolidation: Principles and Accounting Requirements

Consolidation: Intragroup Transactions

Consolidation: Non Controlling Interest

Joint Arrangements

Associates and Joint Ventures

Filters

Exam 2: Application of Accounting Theory

The most correct reason of why residual loss is incurred is:

An example of bonding costs is:

Which of the following problems arises within owner-manager agency relationships? I. Risk aversion III. Clan delution II. Asset substitution IV. Dividend retention

The following restrictions may be included in a debt covenant, except:

The problem of 'underinvestment' arises when managers are reluctant to undertaken projects with positive net present value because:

Which of the following statements is correct?

Under the debt hypothesis:

A market is efficient if:

Considering whether to use historical cost or fair value relates to which of the following components in accounting policy decisions?

Which of the following statements about asset substitution is incorrect?

Accounting Regulation and the Conceptual Framework

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Translation of the Financial Statements of Foreign Entities

Employee Benefits

Inventories

Property, Plant and Equipment

Leases

Understanding Australian Accounting Standards

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Business Combinations

Consolidation: Principles and Accounting Requirements

Consolidation: Intragroup Transactions

Consolidation: Non Controlling Interest

Joint Arrangements

Associates and Joint Ventures

Filters