CORPORATE ACCOUNTING

1) Preference share can be redeemed out of:

a)Capital reserve
b)Fresh issue of debentures
c)Fresh issue of equity shares
d)Revaluation of fixed assets
Ans: a

2)Which of the following statements is true?

a)A debenture holder is an owner of the company
b)A debenture holder can get his money back only on the liquidation of the company
c)A debenture issued at a discount can be redeemed at a premium
d)A debenture holder receives interest only in the event of profits
Ans: a

3)Which of the following cannot be utilized for the redemption of preference-shares of

acompany?
a)Proceedsof fresh issue of shares
b)General Reserve
c)Dividend equalization reserve
d)Securities premium on fresh issue of shares
Ans: a

4)Under super profit basis goodwill is calculated by:

a)No. of years purchased multiplied will average profits.
b)No. of years purchased multiplied with super profits
c)Summation of the discounted value of expected future benefits
d)Super profit divided with expected rate of return
Ans: a

5)When amalgamation is in the nature of merger, the accounting method to be followed is:
a)Equity method
b)Purchase method
c)Pooling of interest method
d)Consolidated method
Ans: a

6)Under purchase method the difference between purchase consideration and Sharecapital of the
transferee company should be adjusted to:
a)General Reserve
b)Amalgamation adjustment account
c)Goodwill or capital reserve
d)None of the above
Ans: a
7)For writing off the accumulated losses under the scheme of capital reduction, we debit—
a)Share capital account
b)Accumulated losses account
c)Capital reduction account.
d)None of the Above
Ans: a

8)Which of the following is not type of NPA (Non-performing assets)?

a)Sub-standard Assets
b)Doubtful Assets
c)Current Assets
d)Loss Assets
9)Schedule III Part II of the Companies Act, 2013 deals with:
a)Format of Balance Sheet
b)Format of Profit and Loss
Ans: a

c)Format of Cash Flow

d)Format of Trading Account
Ans: a

10)Which of the following cash flows is not a cash flow from operating activity?
a)Cash receipts from royalties, fees, commissions and other revenue.
b)Cash payments to suppliers for goods and services.
c)Cash payment to and on behalf of employees.
d)Payment of divide
Ans: a

1. When a company makes a public issue of shares, the offer comes from:
a.the applicants;
b.the directors of the company;
c.the company issuing the shares;
d.the broker handing the share issue for the company;
Ans: a

2. Which of the following statements about share issue is incorrect?

a. It is possible for a company to issue different types of preference shares if the rights of each
type are specified in it’s constitution.
b. Prior to the allotment of shares, the balance in the application account represents a liability of
the company.
c.A company is allowed under the Act to issue partly paid shares.
d. If a company has not reached a minimum subscription level after 3 months from the date of
the disclosure statement, the application money must be refunded by the company within 1
month.
Ans: d

3. According to the Corporation Act 2001, when a company listed on the Australian Stock
Exchange issues shares to the public, the issue price, terms and rights associated with the shares
are determined by:
a. the directors of the company;
b. the Australian Stock Exchange and the company secretary of the company;
c.the underwriters to the share issue and the directors of the company;
d.the Australian Stock Exchange and the directors of the company;
Ans: a

4. An appropriate journal entry to record the receipts of cash on application of shareswill include
the following line:
a.Cr Cash trust;
b.Cr Share capital;
c.Dr Cash;
d.Cr Application;
Ans: d

5. Underwriting and other share issue costs are classified as:

a.an increase in expense;
b.an increase in share capital;
c.a decrease in liability;
d.a decrease in share capital.

Ans: d

6.A share option is a financial instrument that gives a shareholder the right to:
a.receive a certain number of shares in a company at no cost;
b.buy or sell a certain number of shares in the company by a specific date and at a stipulated
price;
c.preferential allotment of shares under a new share issue by the company;
d.not pay the unpaid balance on shares they own when that balance is called in by the company;
Ans: b

7.Without the prior approval of shareholders a company is restricted to private placements of

shares, in any one year, of no more than:
a.5% of existing capital;
b.10% of existing capital;
c.15% of existing capital;
d.20% of existing capital;
Ans: c

8. Which of the following statements about redeemable preference shares is

incorrect?
a.Redeemable preference shares, depending on their terms of issue, may beclassified as equity or
a liability, or a combination of both equity and a liability.
b.Redeemable preferential shares may be redeemed out of profits or fresh issue of ordinary
shares.
c Any premium paid on the redemption of preference shares is regarded as an additional
dividend if the preference shares are treated as equity.
d. A company’s capital cannot be reduced by the redemption of preference
Ans: d

9.Which of the following statements about debentures is incorrect?

a.Unlike shares, debentures may be issued at a premium or discount.
b.Under the Act, debentures exclude unsecured notes and convertible notes.
c.Debentures usually represent secured, long-term liabilities on which interest must be
paid.
d. The issue of debentures must be preceded by the issue of a disclosure
document.
Ans: b

10. According to the Corporation Act 2001, dividends may:

a.only be paid to shareholders once a year;
b.only be paid out of profits of a company;
c.be declared and paid to shareholders irrespective of whether a company
has accumulated losses;
d.only be paid if approved by the Australian Securities and Investments
Commission.
Ans: b

11.An appropriate journal entry to record the payment of final dividends paid will include the
following line:
a. Dr Retained earnings;
b.Dr Final dividend payable;
c.Cr Cash trust;
d.Cr Final dividends payable;
Ans: b

12. Which of the following items is not a reason given for issuing bonus shares?
a. To provide a return to shareholders without any cash outlay, thus protecting the
company’s current liquidity.
b. To capitalise the long-term reserve of a company by converting reserves such as asset
revaluation into share capital.
c. To capitalise the profits of the company under the Corporations Act.
d. None of the above
Ans: d

13. Which of the following statements about reserves is incorrect?

a. There is no definition of a reserve in the accounting standard or in Corporations Act.
b. Reserves may be established by normal practice.
c. Movements in a revaluation reserve can be reclassified in a later period as
part of profit or loss.
d. The reserves accounts of a company are regarded as equity.
Ans: c

14. For a company, retained earnings represent:

a. contributed equity 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;
Ans: d

15.In accordance with AASB 112 Income Taxes, which of the following statements about
accounting for income taxes is incorrect?
a.The tax-effect method focuses on the differences between an entity’smbalance sheet
prepared under accounting standards and its tax-based balance sheet prepared in
accordance with income tax legislation.
b.Accounting entries for current tax liabilities and assets are based on an assessment of an
entity’s current taxable income or tax loss.
c.AASB 112 requires a company to account for both the current and the future tax consequences
of its economic events.
d.Income tax expense recognized in the accounting records is a result of movements in current
tax liabilities (assets).
e.The future tax consequences of accounting transactions result in the recognition of
deferred tax liabilities (assets).
Ans: d

16. Which of the following items are classified as permanent difference? (Note: Permanent
difference arises where expense or revenue is included in the determination of taxable
income (or tax loss) which will never recognize in the profit or loss or vice versa.
I Impairment of goodwill
II Insurance expense
III Rental revenue
IV Additional tax deduction for R & D
V Government grant
a. I and IV.
b. II and III.
c. I, II and III
d. I, IV and V
Ans: d

17.The tax base for an asset equals:

a. carrying amount – future taxable amount + future deductible amount;
b. carrying amount + future taxable amount – future deductible amount;
c. carrying amount – future taxable amount – future deductible amount;
d. carrying amount + future taxable amount + future deductible amount;
Ans: a

18.The tax effect method of accounting for a company’s income tax is based on an assumption
that:
a. income tax expense is equal to income tax payable;
b. income tax expense is not equal merely to current tax liability (asset) but is also a function of
the company’s deferred tax liabilities and assets;
c.an accounting balance sheet and a tax balance sheet are the same;
d. a tax balance sheet is prepared according to the income tax legislation and accounting
standards.
Ans: b

19. Which of the following items give rise to a taxable temporary difference?
I Prepayments
II Rent received in advance
III Provision for employee benefits
IV Research & development
V Goodwill
VI Provision for warranty
a. I, II and II..
b. I, II and VI.
c. I, IV and V.
d. II, III, and VI.
Ans: c

20. Current and deferred tax assets lead to the recognition of:
a. reserves;
b. income;
c. expenses;
d. losses;
Ans: b
21. Deductible temporary differences arise from tax losses can lead to the recognition of:
a. current tax liability;
b. deferred tax liability;
c. current tax asset;
d. income tax expense;
Ans: e

22. Where the impairment of goodwill is not tax deductible, AASB 112 Income Taxes:
a. does not permit the application of deferred tax accounting to goodwill;
b. allows the recognition of a deferred tax item in relation to goodwill;
c. requires that any deferred tax items in relation to goodwill be recognized directly in equity;
d. requires that any deferred tax items for goodwill be capitalized in the
carrying amount of goodwill;
Ans: a

23. Which of the following items are excluded from the explanation of the
relationship between income tax expense and prima facie tax on profit (ie
accounting profit multiplied by the applicable rate)?
I Building depreciation
II Bad debts expense
III Exempt income
IV Loss from change in tax rate
V Annual leave expense
VI Entertainment expense
a. I and VI.
b. II and VI.
c. II and V.
d. I, III, IV and VI.
Ans: c

24. The revaluation under AASB 116 Property, Plant and Equipment apply to:
a. all assets on an individual basis;
b. individual current assets only;
c. individual non-current assets only;
d. assets on a class-by-class basis;
Ans: d

25.A non-current property, plant and equipment asset is depreciated using the straight-
line method. The asset was revalued upwards after four years of use. There is no change in the
remaining useful life of six years or to the residual value. Which of the following relationships
reflect the effect of the revaluation on the prospective depreciation of the asset?
a. Same depreciation rate – higher annual depreciation expense;
b. Same depreciation rate – same annual depreciation expense;
c. Higher depreciation rate – higher annual depreciation expense;
d. Higher depreciation rate – same annual depreciation expense;.
Ans: a

26.The accepted method of accounting for a business combination under AASB 3 Business
Combinations is:
a. the purchase method;
b. the cost method;
c. the acquisition method;
d. the fair value method;
Ans: c

27.Which of the following statements about the requirements of AASB 3 Business Combinations
is incorrect?
a. An acquirer to be identified.
b. Goodwill acquired to be recognized.
c. The assets, liabilities and contingent liabilities to be measured initially at cost at acquisition
date.
d. Disclosure of information that enables users to evaluate changes in the carrying amount of
goodwill.
Ans: c

28. The appropriate account to debit in the records of the acquiring company for costs directly
attributable to a business combination is:
a.cash;
b.retained earnings;
c.goodwill;
d.expense.
Ans: d

29.Consider the following quotation and answer the question below.

In accordance with AASB 3 Business Combinations, goodwill is an asset
representing the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized.
This statement is:
a. incorrect because this is the definition of an internally generated goodwill.
b. incorrect because it is the future economic benefits arising from other assets acquired that are
not capable of being individually identified and separately recognized.
c. correct because this is the definition given by the accounting standard.
d. correct because goodwill can be individually identified and separately recognized.
Ans: b
30. In a business combination, the acquiree is the part that:
a. gives up control over the net assets acquired;
b. pays the acquisition consideration;
c. obtains control of the net assets of the other entity;
d. finances the business combination;

Ans: a

1. Which of the following jobs check accounting in ledgers and financial statements?
(A) Financial
(B) Audit
(C) Management
(D) Budget Analysis
Ans: b

2. The process of accounting is needed to

I. takea holiday
II. assistin decision making
III. invest in start up of a business
IV. track money spent
(A) I, II and III
(B) I, II and IV
(C)I, III and IV
(D)II, III and IV
Ans: d

3. Which of the following describes the practical framework of bookkeeping?

(A) Classifying, recording and summarizing
(B) Reporting, analyzing and interpreting
(C)Classifying, analyzing and interpreting
(D)Recording, summarizing and reporting
Ans: a

4. Which of the following principles assumes that a business will continue for a long time?
(A) Historical cost
(B) Periodicity
(C)Objectivity
(D)Going concern
Ans: d

5. Which of the following users assesses the attractiveness of investing in a business?

(A) Tax authorities
(B) Financial analysts
(C) Bank
(D)
Employees
Ans: b

6. Accountants use GenerallyAccepted Accounting Principles (GAAP) to make the financial

information communicated
I. relevant
II. reliable
III. comparable
IV profitable
(A) I, II and III
(B) I, II and IV
(C)I, III and IV
(d)II, III and IV
Ans: a

7. One of the detailed rules used to record business transaction is

(A) Objectivity
(B) Accruals
(C) Double entry book keeping
(D)Going Concern
Ans: c

9. Which of the following highlights the correct order of the stages in the accounting cycle?
(A) Journalizing,final accounts,posting to the ledger and trial balance
(B) Journalizing, posting to the ledger, trial balance and final accounts
(C)Posting to the ledger, trial balance, final accounts and journalizing
(D)Posting to the ledger, journalizing, final accountsand trial balance
Ans: b