Deck 16: Accounting Policy Choices

Question 1

Which of the following is NOT normally a significant accounting estimate involved in financial measurement?

A) The amount of product warranty claims to be included in the balance sheet
B) The portion of credit sales that will be uncollectable
C) The life of an asset for depreciation purposes
D) How many financial periods will benefit from advertising

Answer 1

D

Question 2

Select the income statement account(s) that would be affected by a policy choice at the same time as the accounts receivable balance sheet account.

A) Revenue
B) Cost of goods sold expense
C) Depreciation or amortisation expense
D) Retained profits

Answer 2

A

Question 3

In which of the following areas has choice largely been made by a standard-setting body, legislators or by accepted practice, so that companies are NOT free to make their own decisions?

A) Selection of depreciation method
B) How to determine allowance for doubtful debts
C) Inventory valuation method
D) Whether to include goodwill in the balance sheet

Answer 3

D

Question 4

Swing Ltd uses FIFO for its inventory, which is valued at $21 000. It is considering a change to moving weighted average, which would change the valuation of inventory to $22 500. Which of the following would be decreased by the change?

A) Cost of goods sold
B) Sales
C) Liabilities
D) Retained profits

Question 5

Which of the following are affected by changing the rate of depreciation in the year of the change?

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

Question 6

Which of the following is NOT an area in which companies typically make policy accounting choices?

A) Whether equipment purchases are included in cash flow from investing or cash flow from financing section of a cash flow statement
B) The amount of cost of goods sold reported
C) The amount of disclosure in the notes to the financial statements
D) When to recognise revenue

Question 7

Which of the following would NOT be affected by an accounting policy change involving the capitalisation of some repairs expenses?

A) Expenses
B) Revenues
C) Assets
D) Net profit

Question 8

Which of the following would be decreased by an accounting policy change involving writing off obsolete inventories?

A) Expense
B) Revenue
C) Liabilities
D) Net profit

Question 9

Which of the following would be increased by an accounting policy change involving the accrual of greater employee benefits expense?

A) Assets
B) Liabilities
C) Net profit
D) Retained profits

Question 10

Which of the following is NOT an area in which companies typically make policy accounting choices?

A) When to recognise revenue
B) The method of depreciation to use
C) How to value inventories in the balance sheet
D) Dividend policy

Question 11

Trainer Ltd is trying to decide whether to change from the reducing balance method of depreciation to the straight-line method for both accounting and tax purposes. Using the reducing balance method at the rate allowable for taxation purposes, the expense would be $1 020 000. If it changed to the straight-line method, depreciation expense would be $680 000. If the straight-line method were used instead of the reducing balance method, what would be the effect on depreciation expense?

A) $122 400 reduction
B) $217 600 reduction
C) $340 000 reduction
D) $217 600 increase

Question 12

Which of the following is NOT an accounting method that would increase the current ratio (currently 2:1)?

A) Not adjusting prepaid insurance at year end
B) Recognising unearned revenue as revenue
C) Not recognising accrued wages
D) Changing the method of depreciation

Question 13

Which of the following is NOT an accounting method that could be chosen by a company to increase reported profits in a particular year?

A) Understating allowance for doubtful debts
B) Classifying longer-term receivables as current assets
C) Changing estimates of the useful life of plant and equipment
D) Changing the method of inventory valuation

Question 14

Which of the following would be increased by an accounting policy change involving the recognition of accounts receivable sooner?

A) Revenue
B) Expense
C) Liability
D) None of the above

Question 15

Select the balance sheet account(s) that would be affected by a policy choice at the same time as the cost of goods sold income statement account.

A) Accounts receivable
B) Inventories
C) Accrued expenses
D) Property, plant and equipment

Question 16

Trainer Ltd is trying to decide whether to change from the reducing balance method of depreciation to the straight-line method for both accounting and tax purposes. Using the reducing balance method at the rate allowable for taxation purposes, the expense would be $1 020 000. If it changed to the straight-line method, depreciation expense would be $680 000. If the straight-line method were used instead of the reducing balance method, which of the following is NOT affected?

A) Net profit.
B) Cash flow from operations
C) Income tax liability
D) Depreciation expense

Question 17

Select the income statement account(s) that would be affected by a policy choice at the same time as the inventory balance sheet account.

A) Bad debts expense
B) Cost of goods sold expense
C) Depreciation or amortisation expense
D) Sales revenue