Deck 18: Accounting Policies and Other Disclosures

Question 1

The financial statements of an entity are authorised for issue on:

A) the day the directors' declaration is signed.
B) 30 June each year.
C) the last day of the financial year.
D) the day the auditor's report is signed.

Answer 1

A

Question 2

Correcting the recognition, measurement and disclosure of amounts of financial statement elements as if a prior period error had never occurred is known as:

A) prior period application.
B) historical restatement.
C) retrospective restatement.
D) retrospective application.

Answer 2

C

Question 3

Prior to the finalisation of the financial statements for the year ended 30 June 2021, a company experienced a number of material events, including: I. on 15 July 2021 the directors decided to close a division of the company at an estimated cost of $\$ 920,000$ .
II. on 18 August 2021 a court decision found the company liable to pay damages of $\$ 350,000$ to a major customer who had commenced legal action in April 2020.
III. an independent valuation of property conducted on 29 July 2021 revealed that the directors' valuation included in the 30 June 2021 financial statements was overstated by $\$ 400,000$ . General journal entries to adjust the financial statements will be required for which of the above events?

A) I, II and III.
B) II only, and make a note disclosure for I and III.
C) III only, and make a note disclosure for I and II.
D) II and III only, and make a note disclosure for I.

Answer 3

II and III only, and make a note disclosure for I.

Question 4

A company's workforce went on strike for an indefinite period commencing on 28 July 2022. The strike was expected to cause severe financial conditions for the company. The financial statements for the year ended 30 June 2022 were expected to be finalised by 3 August 2022. In accordance with AASB 110 Events after the Reporting Period, the appropriate treatment regarding this event is to:

A) adjust the financial statements, as it is an adjusting event.
B) disclose as a note to the financial statements, as it is an adjusting event.
C) disclose as a note to the financial statements, as it is a non-adjusting event.
D) do nothing as the event has occurred after the end of the reporting period.

Question 5

Which of the following does not require an entity to use estimates when preparing its financial statements?

A) The original purchase price of an asset
B) Provision for employee benefit such as long-service leave
C) Doubtful debts expense
D) Depreciation expense

Question 6

Errors can occur for which of the following reasons?
I. Mistakes in applying accounting policies
II. Misinterpretation of facts
III. Mathematical mistakes
IV. Fraud

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

Question 7

In determining whether an item is material, consideration must be given to:

A) its value.
B) its size only.
C) its nature only.
D) both its size and nature.

Question 8

Which of the following disclosures are required by AASB 108/IAS 8 for a voluntary change in accounting policy?

A) The nature of the change.
B) The reasons that applying the new accounting policy provides reliable and more relevant information.
C) The amount of the adjustment relating to periods prior to those presented to the extent practicable.
D) All of these disclosures are required.

Question 9

Bailey Limited has discovered that the estimated useful life for a material depreciable asset is incorrect due to a change in the way the asset is being used. The correct accounting treatment for this event is to:

A) treat it as an error and adjust retrospectively.
B) disclose the change in the notes to the financial statements.
C) treat it as a change in an accounting estimate and adjust prospectively.
D) treat it as a change in an accounting estimate and adjust retrospectively.

Question 10

The correction of a material error that occurred in a previous period must be accounted for by:

A) an adjustment in future accounting periods.
B) a prospective adjustment to the financial statements.
C) ignoring it; errors made in prior periods can't be corrected.
D) a retrospective restatement in the first financial statements issued after the discovery of the error.

Question 11

Events occurring after the end of the reporting period which provide evidence of conditions that existed at the end of the reporting period are known as:

A) reporting events.
B) adjusting events.
C) disclosing events.
D) non-adjusting events.

Question 12

According to AASB 108, omissions or misstatements are material if they:

A) have resulted from an act of fraud.
B) are less than 10% of the relevant base amount.
C) are greater than 10% of the relevant base amount.
D) could influence the economic decisions of users as based on the financial statements.

Question 13

Which of the following is not required to be disclosed in an entity's accounting policy note?

A) A description of the entity's key accounting policies.
B) That the financial statements are general purpose financial statements.
C) The measurement bases used in the preparation of the financial statements.
D) That the financial statements have been prepared on the going concern basis.

Question 14

Which of the following statements relating to materiality is correct?

A) Materiality only ever depends on the size of an item.
B) The disclosure provisions of accounting standards do not need to be applied if the resulting information is immaterial.
C) Extensive guidance is given in accounting standards on the concept of materiality.
D) The disclosure provisions of accounting standards must always be applied even if the resulting information is immaterial.