Deck 3: Company Operations

Question 1

According to the Corporations Act 2001,dividends may:

A)only be paid to shareholders once a year
B)only be paid out of the profits of a company
C)be declared and paid to shareholders irrespective of whether a company has accumulated losses
D)be paid if the company has an excess of assets over liabilities.

Answer 1

D

Question 2

When changing an accounting policy which of the following has to be applied retrospectively?

A)a voluntary change to improve the relevance of information presented
B)a change due to the adoption of a new accounting standard
C)a change due to the adoption of a new interpretation
D)all of the above.

Answer 2

A

Question 3

A company incurs significant costs in relation to a speculative project that intends to turn rocks into gold.In accordance with the AASBs Conceptual Framework the costs of this project are an:

A)expense because there is little probability that future economic benefits will eventuate
B)expense because the recognition criteria for an asset is not satisfied
C)asset because the definition and recognition criteria for assets are satisfied
D)asset because the company will control the future economic benefits.

Answer 3

A

Question 4

AASB 137 defines a provision as:

A)a present obligation arising from past events,the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits
B)a liability of uncertain timing and amount.
C)a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence/non-occurrence of one or more uncertain events not wholly within he control of the entity.
D)a present obligation that arises from a past event but is not recognised because the amount of the obligation cannot be measured with sufficient reliability.

Question 5

Which of the following statements is not correct in relation to cumulative preference shares?

A)Holders of cumulative preference shares are guaranteed a dividend every year.
B)Undeclared cumulative preference share dividends accumulate,or carry forward,to future periods
C)The accumulated amount of any cumulative preference share dividend plus the current year's preference dividend must be paid before any dividend can be paid to ordinary shareholders.
D)Cumulative preference share dividends that are not declared in the year they are due are called dividends in arrears

Question 6

Information in a company's financial statements is considered to be reliable when it:
I is relevant to the decision making needs of users
II represents faithfully the financial position,financial performance and cash flows of the entity;
III is neutral
IV is prudent
V reflect the economic substance of transactions,other events and conditions

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

Question 7

In the context of liabilities present obligations may be:

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

Question 8

Which of the following statements is correct in relation to the recognition of expenses?

A)Under the Conceptual Framework the recognition of expenses is not tied to the matching process.Therefore the matching process no longer has any influence in practice
B)The recognition of expenses is not subject to the same degree of regulation as revenue
C)Under the Conceptual Framework the use of the matching process in relation to the recognition of expenses is acceptable,but must be discarded if it creates dubious assets and liabilities
D)Individual accounting standards may be consulted to determine the appropriate treatment for particular types of expenses.

Question 9

In relation to an asset revaluation surplus,an entity:

A)is not able to use this surplus for the payment of future dividends
B)is able to use this surplus for the payment of future dividends
C)is not able to transfer this surplus to any other reserve account
D)can transfer the surplus to the current period profit or loss when the asset is disposed of.

Question 10

For a company,retained earnings represent:

A)contributed capital from shareholders
B)profits retained by the company before tax is paid to the government
C)net cash retained by the company before any payment for dividends to shareholders
D)profits retained by the company after payment and provision for dividends,and after any transfer to and from reserves.

Question 11

AASB 101 requires which of the following in relation to the classification of expenses?

A)Expenses to be classified by either nature or function
B)Expenses to be classified by nature,unless classification by function is more relevant
C)Expenses to be classified by function,unless classification by nature is more relevant
D)Expenses to be classified by both nature and function

Question 12

Which of the following statements is not one of the four main financial statements that companies are required to prepare?

A)a Statement of Cash Flows
B)a Statement of Changes in Equity
C)a Statement of Retained Earnings
D)a Statement of Financial Position

Question 13

Dividends declared after the balance sheet date but before the financial statements are authorised for issue:

A)meet the criteria for recognition as a liability
B)satisfy the criteria for recognition as an expense
C)are recognised in the balance sheet as they meet the definition of equity
D)do not meet the AASB 137 criteria of a present obligation.

Question 14

According to the AASBs Conceptual Framework an asset is:

A)a contingent item depending on another event occurs at some time in the future
B)a future benefits controlled by an entity as the result of a future transaction
C)a future benefit controlled by an entity as the result of past transactions or events
D)an item that has a physical existence and can be converted into cash.

Question 15

When making a transfer from a general reserve to retained earnings,which of the following journals could be used?

A)DR General Reserve CR Retained earnings
B)DR General Reserve CR Transfer to general reserve
C)DR Retained earnings CR General Reserve
D)DR Transfer to general reserve CR General Reserve

Question 16

The Conceptual Framework defines income as follows

A)Increases in economic benefits during the accounting period in the from of inflows or enhancements of assets or decreases of liabilities that result in increases in equity,other than those relating to contributions from equity participants
B)The gross inflow of economic benefits during the period arising in the course of ordinary activities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity participants
C)Income that arises in the ordinary course of business and is referred to by a variety of different names,including sales,fees,interest,dividends and royalties
D)Income is not defined in the Conceptual Framework

Question 17

Which of the following categories of revenue is not specified in AASB 118 Revenue?

A)revenues from services rendered
B)interest from marketable securities
C)royalties
D)dividends.

Question 18

According to AASB 101 an entity will classify a liability as non-current when:

A)it holds the liability mainly for trading
B)it expects to settle the liability outside its normal operating cycle
C)the entity does not have an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date
D)the liability is due to be settled within 12 months after the reporting date.

Question 19

The components of equity generally recognised by companies in a balance sheet are:
I)Provisions.
II)Debentures
III)Share capital.
IV)Other reserves.
V)Retained earnings.

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

Question 20

According to AASB 118 Revenue,revenue from services can be recognised when:
I)The amount can be measured reliably.
II)It is probable that the economic benefits will flow to the entity.
III)The stage of completion can be reliably measured.
IV)The costs incurred and the costs of completion can be measured reliably.

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

Question 21

Outline the components of the retained earnings of a company.

Question 22

A present obligation must exist in order for a liability to exist.Explain what is meant by the term present obligation.

Question 23

Identify the four major financial statements and provide an outline of those documents.

Question 24

Outline the major contents of the statement of changes in equity.