Question 1

If the debt ratio is 40% the equity ratio is:

Accepted Answer

A)  40%. 
B)  2:1. 
C)  60%. 
D)  unable to be calculated. 
A)  40%. 
B)  2:1. 
C)  60%. 
D)  unable to be calculated. C

Question 2

Which of these is not typically a non-current liability?

Accepted Answer

A)  Unsecured notes 
B)  Mortgage payable 
C)  Provision for long service leave 
D)  Accounts payable 
A)  Unsecured notes 
B)  Mortgage payable 
C)  Provision for long service leave 
D)  Accounts payable D

Question 3

Which statement concerning liabilities is untrue?

Accepted Answer

A)  Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk. 
B)  The absolute value of liquidity ratios is usually more important than their trend over time. 
C)  A difference between an accounts payable and a bills payable is that the liability created with a bills payable is evidenced by a bills payable or a promissory note. 
D)  Leverage is the use of borrowed funds in an attempt to earn a return greater than the interest paid on the borrowings. 
A)  Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk. 
B)  The absolute value of liquidity ratios is usually more important than their trend over time. 
C)  A difference between an accounts payable and a bills payable is that the liability created with a bills payable is evidenced by a bills payable or a promissory note. 
D)  Leverage is the use of borrowed funds in an attempt to earn a return greater than the interest paid on the borrowings. B

Question 4

It is not true in relation to IAS 19/AASB 119 Employee Benefits that:

Accepted Answer

A)  employee benefits include wages and salaries, non-monetary fringe benefits, annual leave and superannuation. 
B)  the principles for recognition of employee benefits as expenses or liabilities are consistent with those in the Conceptual Framework. 
C)  wages and salaries, annual leave and sick leave are to be reported at their nominal amounts. 
D)  the controls that need to be provided when operating a payroll system are outlined. 
A)  employee benefits include wages and salaries, non-monetary fringe benefits, annual leave and superannuation. 
B)  the principles for recognition of employee benefits as expenses or liabilities are consistent with those in the Conceptual Framework. 
C)  wages and salaries, annual leave and sick leave are to be reported at their nominal amounts. 
D)  the controls that need to be provided when operating a payroll system are outlined.

Question 5

Which statement concerning debentures is incorrect?

Accepted Answer

A)  A trustee, such as a bank or an insurance company, must be appointed to protect the rights of the debenture holders. 
B)  An issue of debentures to the public must be accompanied by a prospectus. 
C)  The division of debenture borrowings into $100 or $50 units allows many small investors to participate in the issue. 
D)  The market value of debentures is always the same as their face value. 
A)  A trustee, such as a bank or an insurance company, must be appointed to protect the rights of the debenture holders. 
B)  An issue of debentures to the public must be accompanied by a prospectus. 
C)  The division of debenture borrowings into $100 or $50 units allows many small investors to participate in the issue. 
D)  The market value of debentures is always the same as their face value.

Question 6

Which statement concerning long-service leave is correct?

Accepted Answer

A)  Long-service leave does not have to be paid to an employee until the required period of employment has been completed,e.g. 10 years, 15 years. 
B)  Long-service leave is paid at the employees' average rate of pay over the period for which the leave has accrued. 
C)  Long-service leave relates to an insurance scheme whereby employees are compensated for injuries, loss of limbs and loss of life while at work. 
D)  Long-service leave entitlements were recently abolished by the government. 
A)  Long-service leave does not have to be paid to an employee until the required period of employment has been completed,e.g. 10 years, 15 years. 
B)  Long-service leave is paid at the employees' average rate of pay over the period for which the leave has accrued. 
C)  Long-service leave relates to an insurance scheme whereby employees are compensated for injuries, loss of limbs and loss of life while at work. 
D)  Long-service leave entitlements were recently abolished by the government.

Question 7

Indigo had previously purchased inventory from Larry for $40 000. On 1 October Indigo gave Larry a 90-day, bill of exchange to cover the amount of the account payable plus interest at 10% p.a. The correct accounting entry in Indigo's books to record the settlement of the bill at maturity is:

Accepted Answer

A)  Debit bills payable $40 986; debit interest expense $986; credit bank $40 986; credit unexpired interest $986 
B)  Debit bills payable $40 986; credit interest expense $986; credit bank $40 000. 
C)  Debit bills payable $40 000; credit bank $40 000 
D)  Debit bills payable $39 014; debit interest expense $986; credit bank $40 000 
A)  Debit bills payable $40 986; debit interest expense $986; credit bank $40 986; credit unexpired interest $986 
B)  Debit bills payable $40 986; credit interest expense $986; credit bank $40 000. 
C)  Debit bills payable $40 000; credit bank $40 000 
D)  Debit bills payable $39 014; debit interest expense $986; credit bank $40 000

Question 8

Which of these is not part of the net pay calculation?

Accepted Answer

A)  Workers compensation insurance 
B)  Clothing allowance 
C)  Bonus 
D)  Overtime pay 
A)  Workers compensation insurance 
B)  Clothing allowance 
C)  Bonus 
D)  Overtime pay

Question 9

What are the essential characteristics of a liability under the definition in the Conceptual Framework?
i. Settlement requiring an outflow of resources embodying economic benefits.
ii. A present obligation to an external party.
iii. A legal debt.
iv. The obligation must have resulted from past events.

Accepted Answer

A)  i, , iv 
B)  i, ii, ,iv 
C)  i, ii, iii 
D)  ii, iii, iv 
A)  i, , iv 
B)  i, ii, ,iv 
C)  i, ii, iii 
D)  ii, iii, iv

Question 10

ZigZag Pty Ltd made the following journal entry to accrue payroll for the week ended 28 February.
dr. Cr.

Accepted Answer

A)  (I) $321 400, (II) $321 400 
B)  (I) $210 550, (II) $210 550 
C)  (I) $321 400, (II) $210 550 
D)  (I) $210 550, (II) $321 400 
A)  (I) $321 400, (II) $321 400 
B)  (I) $210 550, (II) $210 550 
C)  (I) $321 400, (II) $210 550 
D)  (I) $210 550, (II) $321 400

Question 11

(I. Warranty expense and (II) provision for warranties are what type of accounts?

Accepted Answer

A)  (I) Expense, (II) equity 
B)  (I) Expense, (II) asset 
C)  (I) Expense, (II) liability 
D)  (I) Liability, (II) expense 
A)  (I) Expense, (II) equity 
B)  (I) Expense, (II) asset 
C)  (I) Expense, (II) liability 
D)  (I) Liability, (II) expense

Question 12

Which of these criteria specified in the Conceptual Framework must be met before a liability can be recognised in the accounting records?
i. It is probable that the future sacrifices associated with the item will occur.
ii. The liability is beyond a reasonable doubt.
iii. The liability has a cost or value that can be measured with reliability.

Accepted Answer

A)  i, ii, iii 
B)  i, iii 
C)  ii, iii 
D)  i, ii 
A)  i, ii, iii 
B)  i, iii 
C)  ii, iii 
D)  i, ii

Question 13

A capitalisation ratio of 2:1 compared to 2.5:1 means:

Accepted Answer

A)  a lesser dependency on debt. 
B)  a lower level of gearing. 
C)  a greater dependency on debt. 
D)  a higher level of equity. 
A)  a lesser dependency on debt. 
B)  a lower level of gearing. 
C)  a greater dependency on debt. 
D)  a higher level of equity.

Question 14

Debentures may be:
i. secured by a specific charge over particular assets.
ii. secured by a floating charge over assets.
iii. unsecured.

Accepted Answer

A)  i 
B)  i, ii 
C)  i, ii, iii 
D)  ii, iii 
A)  i 
B)  i, ii 
C)  i, ii, iii 
D)  ii, iii

Question 15

What types of accounts are (I) GST collections and (II) GST outlays?

Accepted Answer

A)  (I) Liability, (II) asset 
B)  (I) Negative liability, (II) liability, 
C)  (I) Asset, (II) liability 
D)  (I) Liability, (II) negative liability 
A)  (I) Liability, (II) asset 
B)  (I) Negative liability, (II) liability, 
C)  (I) Asset, (II) liability 
D)  (I) Liability, (II) negative liability

Question 16

Souvenirs Pty Ltd has a current ratio of 3:1 and current liabilities of $15 000. If Souvenirs Ltd has $10 000 of inventory, what is the quick ratio?

Accepted Answer

A)  2.25 to 1 
B)  2.00 to 1 
C)  2.33 to 1 
D)  1.50 to 1 
A)  2.25 to 1 
B)  2.00 to 1 
C)  2.33 to 1 
D)  1.50 to 1

Question 17

Under Australian awards, which statement relating to annual leave is true?

Accepted Answer

A)  Annual leave is generally accounted for on a cash rather than an accrual basis. 
B)  An employee is not entitled to annual leave until he/she has worked for a year with the same employer. 
C)  Employees are generally entitled to two weeks paid annual leave a year. 
D)  Employees are entitled to be paid pro-rata for annual leave not taken if their employment terminates. 
A)  Annual leave is generally accounted for on a cash rather than an accrual basis. 
B)  An employee is not entitled to annual leave until he/she has worked for a year with the same employer. 
C)  Employees are generally entitled to two weeks paid annual leave a year. 
D)  Employees are entitled to be paid pro-rata for annual leave not taken if their employment terminates.

Question 18

What are the two criteria, specified in the Conceptual Framework, that must be met before a liability can be recognised in the accounting records?

Accepted Answer

A)  It must be probable that any future sacrifices associated with the item will flow from the entity and the liability must have a cost or value that can be measured with reliability. 
B)  It must be probable that a future sacrifice of economic resources will be required and the liability must be beyond a reasonable doubt. 
C)  The liability must be beyond a reasonable doubt and the amount of the liability must be able to be recognised reliably. 
D)  There must have been a past event and there must be a present obligation 
A)  It must be probable that any future sacrifices associated with the item will flow from the entity and the liability must have a cost or value that can be measured with reliability. 
B)  It must be probable that a future sacrifice of economic resources will be required and the liability must be beyond a reasonable doubt. 
C)  The liability must be beyond a reasonable doubt and the amount of the liability must be able to be recognised reliably. 
D)  There must have been a past event and there must be a present obligation

Question 19

A bank loan for $100 000, taken out on 1 July 2015, is repayable in equal instalments, plus interest, over 5 years. The annual repayments are due on the second last day of the financial year. How would the loan be classified in a balance sheet prepared at 30 June 2016, the end of the entities financial year?

Accepted Answer

A)  Non-current liability $80 000 
B)  Current liability $20 000; non-current liability $80 000 
C)  Current liability $40 000; non-current liability $40 000 
D)  Current liability $20 000; non-current liability $60 000 
A)  Non-current liability $80 000 
B)  Current liability $20 000; non-current liability $80 000 
C)  Current liability $40 000; non-current liability $40 000 
D)  Current liability $20 000; non-current liability $60 000

Question 20

Kartik's regular and overtime gross pay combined, for the week ending 30 September, was $1480. Amounts were deducted for income tax $339.50, union fees $6 and donations to charity $50. Kartik contributes 10% of his gross pay to a superannuation fund as a personal contribution. What is his net pay for the week?

Accepted Answer

A)  $1084.50 
B)  $936.50 
C)  $1140.50 
D)  $1134.50 
A)  $1084.50 
B)  $936.50 
C)  $1140.50 
D)  $1134.50

Exam 22: Liabilities

If the debt ratio is 40% the equity ratio is:

Which of these is not typically a non-current liability?

Which statement concerning liabilities is untrue?

It is not true in relation to IAS 19/AASB 119 Employee Benefits that:

Which statement concerning debentures is incorrect?

Which statement concerning long-service leave is correct?

Indigo had previously purchased inventory from Larry for $40 000. On 1 October Indigo gave Larry a 90-day, bill of exchange to cover the amount of the account payable plus interest at 10% p.a. The correct accounting entry in Indigo's books to record the settlement of the bill at maturity is:

Which of these is not part of the net pay calculation?

ZigZag Pty Ltd made the following journal entry to accrue payroll for the week ended 28 February. dr. Cr.

(I. Warranty expense and (II) provision for warranties are what type of accounts?

A capitalisation ratio of 2:1 compared to 2.5:1 means:

Debentures may be: i. secured by a specific charge over particular assets. ii. secured by a floating charge over assets. iii. unsecured.

What types of accounts are (I) GST collections and (II) GST outlays?

Souvenirs Pty Ltd has a current ratio of 3:1 and current liabilities of $15 000. If Souvenirs Ltd has $10 000 of inventory, what is the quick ratio?

Under Australian awards, which statement relating to annual leave is true?

What are the two criteria, specified in the Conceptual Framework, that must be met before a liability can be recognised in the accounting records?

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

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