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Henderson, Issues in Financial Accounting 16e
1) The AASB 101 definition of current assets has made which term virtually obsolete?
A) Fixed assets
B) Inventory
C) Current assets
D) Non-current assets
Answer: A
AACSB: Written and Oral Communication
Topic: 7.1 Introduction
Learning Objective: LO 7.1. Explain the basis for distinguishing between current and non-current assets.
Difficulty: Medium
A) Inventory
B) Accounts receivable
C) Short-term deposits
D) Each of the listed choices are considered current assets
Answer: D
AACSB: Written and Oral Communication
Topic: 7.1 Introduction
Learning Objective: LO 7.1. Explain the basis for distinguishing between current and non-current assets.
Difficulty: Easy
3) Explain and discuss the criteria contained in AASB 101 for distinguishing between current and non-current assets.
Answer: For the statement of financial position, it is customary to classify assets into current assets and
noncurrent assets. The basis of this classification is not at all clear. Writing in 1952, Fitzgerald and Schumer
commented that ‘there is obviously a serious lack of uniformity in both theory and practice in the fixed–current
basis of classification of assets’. There is still some ambiguity about this basis of asset classification. According to
paragraph 66 of AASB 101 ‘Presentation of Financial Statements’, an entity shall classify an asset as current when:
( a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle; (b) it holds the
asset primarily for the purpose of trading; ( c) it expects to realise the asset within twelve months after the reporting
period; or ( d) the asset is cash or a cash-equivalent (as defined in AASB 107) unless the asset is restricted from
being exchanged or used to settle a liability for at least twelve months after the reporting period.
An entity shall classify all other assets as non-current.
AACSB: Written and Oral Communication
Topic: 7.1 Introduction
Learning Objective: LO 7.1. Explain the basis for distinguishing between current and non-current assets.
Difficulty: Easy
4) AASB 108 requires that changes to accounting estimates be dealt with prospectively. This means that the effect of
a past overestimate of doubtful debts expense is:
A) recognised in the current reporting period
B) used to increase this periods estimated expense
C) both A and B
D) neither A nor B
Answer: A
AACSB: Analytical Thinking
Topic: 7.2 Accounts receivable
Learning Objective: LO 7.2. Describe the nature of accounts receivable and the procedure for initial recognition and
subsequent measurement of accounts receivable.
Difficulty: Medium
5) Where an allowance for doubtful debts account is maintained, the accounting entry to write off a bad debt is:
A) liability account
B) expense account
C) contra expense account
D) contra asset account
Answer: D
AACSB: Written and Oral Communication
Topic: 7.2 Accounts receivable
Learning Objective: LO 7.2. Describe the nature of accounts receivable and the procedure for initial recognition and
subsequent measurement of accounts receivable.
Difficulty: Easy
A) supplies inventory
B) raw materials
C) work-in-process
D) none of the above, i.e., all are part of manufacturing inventory
Answer: D
AACSB: Analytical Thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.3. Identify the ways in which inventories may be classified.
Difficulty: Medium
A) Inventory that is held by an agent for sale on consignment but is owned by a principal is included in the inventory
of the principal
B) Inventory sold under hire purchase is normally treated as an asset of the buyer even though it is owned by the
seller
C) Both are correct
D) Neither is correct
Answer: C
AACSB: Analytical Thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.3. Identify the ways in which inventories may be classified.
Difficulty: Medium
A) AASB 101
B) AASB 132
C) AASB 9
D) AASB 102
Answer: D
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.4. Explain and apply the requirements of AASB 102 ‘Inventories’.
Difficulty: Easy
Copyright ©2017 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781488611643/Henderson/Issues In
Financial Accounting/16e
21) Which two components of expense are recognised in the statement of comprehensive income?
22) Two approaches to determining the number of units of inventory on hand are:
A) periodic, physical
B) lower of cost and net realisable value
C) FIFO, weighted average
D) periodic, perpetual
Answer: D
AACSB: Analytical Thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.5. Explain the purposes of accounting for inventory.
Difficulty: Medium
23) A reason for not allocating all the outgoings incurred in bringing the inventory to its present location and
condition to the cost of inventory is:
A) allocation may not make a material difference to reported profit or to the carrying amount of the inventory
B) the allocation of some costs may be time-consuming
C) incidental costs of acquisition may be minor
D) all of the above are reasons
Answer: D
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.6. Identify the components of the cost of inventory.
Difficulty: Medium
A) Average cost
B) First-in, first-out
C) Periodic
Copyright ©2017 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781488611643/Henderson/Issues In
Financial Accounting/16e
D) Last-in, first-out
Answer: C
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.7. Describe the effects of the choice of cost-flow assumption in measuring inventory and
cost of goods sold.
Difficulty: Easy
25) Choosing a cost flow assumption to be applied to inventory, such as FIFO or weighted average, is to solve the
problem of:
26) Inventories are undervalued in periods of rising prices. This is a disadvantage of which of the inventory
cost-flow assumption?
A) First-in, first-out
B) Last-in, first-out
C) Perpetual
D) Average cost
Answer: B
AACSB: Analytical thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.7. Describe the effects of the choice of cost-flow assumption in measuring inventory and
cost of goods sold.
Difficulty: Medium
27) The cost flow method where cost of goods sold consists of the most recent goods acquired is:
28) Assuming prices are decreasing, the first-in-first-out approach to inventory valuation, compared to the average
cost approach, will give:
A) there is a requirement to use the same cost flow assumption for taxation and financial reporting purposes
B) for perishable goods FIFO must be used
C) FIFO is not allowed for taxation purposes
D) none of the statements is correct
Answer: A
AACSB: Analytical thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.7. Describe the effects of the choice of cost-flow assumption in measuring inventory and
cost of goods sold.
Difficulty: Medium
32) The justification for the inventory valuation rule, the lower of cost and net realisable value, is:
A) conservatism
B) cost versus benefit
C) reliability
D) materiality
Answer: A
AACSB: Analytical thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.7. Describe the effects of the choice of cost-flow assumption in measuring inventory and
cost of goods sold.
Difficulty: Medium
33) Explain the effects on the financial reports of the FIFO cost flow assumption in a period of rising prices and
discuss the arguments that have been raised for and against the use of this assumption to value inventory.
Answer: FIFO gives the lowest cost of goods sold and highest closing inventory. The average cost gives amounts
between those of LIFO and FIFO. Where there is freedom of choice, management would choose the cost-fl ow
assumption that best meets its needs. For example, when prices are rising, use of FIFO produces highest profits and
this may benefit management through higher compensation and bonuses. But there may be other considerations.
A criticism of FIFO is that it matches old, past inventory costs with current sales revenue. This means that, when
inventory prices are rising, reported profit will be greater than current profit (current sales revenue less current
costs). The overstatement of reported profit occurs because profit includes holding gains on inventory. It is
argued that failing to match current costs with current sales revenue has two implications: 1 The use of FIFO
accentuates the business cycle. In boom conditions, when confidence and prices are rising, reported profit will be
Copyright ©2017 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781488611643/Henderson/Issues In
Financial Accounting/16e
overstated, thereby adding to confidence and the boom. Conversely, when confidence and prices are falling,
reported profit will be understated and confidence will fall even further. Critics believe that accounting procedures
should show an unbiased summary of results and should not be a partial determinant of business conditions. 2 The
inclusion of holding gains on inventory as a part of reported profit may lead to liquidity problems for the entity.
AACSB: Analytical thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.7. Describe the effects of the choice of cost-flow assumption in measuring inventory and
cost of goods sold.
Difficulty: Medium
34) Explain the concept of the lower of cost and net realisable value rule.
Answer: Accountants have traditionally recognised expected future losses in the period in which they are first
anticipated, but gains are not recognised until they occur. This asymmetrical treatment of losses and gains is
described as conservatism. An important example of traditional conservatism is the lower of cost and net
realisable value rule for inventory valuation. This rule requires that an item of inventory should be carried at the
lower of its cost and its net realisable value. If net realisable value falls below cost, the inventory should be written
down to net realisable value – that is, anticipated losses on unsold inventory are recognised immediately, not when
the inventory is sold. The measurement of the cost of inventory is discussed in earlier sections. The net realisable
value of items of inventory is their estimated selling price in the normal course of business, less any further costs to
make the goods ready for sale and to make the sale.
AACSB: Analytical thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.7. Describe the effects of the choice of cost-flow assumption in measuring inventory and
cost of goods sold.
Difficulty: Medium
35) AASB 102 requires that any write down to net realisable value:
A) must be recognised as an expense in the period that the write down occurs
B) must be reversed when there is clear evidence of an increase in value
C) must be applied only on an item by item basis
D) A and B above
Answer: D
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.8 Apply the lower of cost and net realisable value rule.
Difficulty: Hard
36) Under the perpetual inventory system, the accounting entry to record a write-down of $600 of various inventory
items from cost to net realisable value is:
Copyright ©2017 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781488611643/Henderson/Issues In
Financial Accounting/16e
A) debit cost of goods sold $600; credit inventory $600
B) debit inventory $600; credit cost of goods sold $600
C) debit inventory $600; credit bank $600
D) debit cost of goods sold $600; credit bank $600
Answer: A
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.8 Apply the lower of cost and net realisable value rule.
Difficulty: Medium
37) Inventory item Z8 has a cost price of $30 and a net realisable value $25, while item D3 has a cost price of $20, a
net realisable value $25 and a replacement cost of $21. Under the lower of cost and net realisable value rule of
inventory valuation, applied on an item-by-item basis, the value of inventory is:
A) $50
B) $51
C) $45
D) none of the above
Answer: C
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.8 Apply the lower of cost and net realisable value rule.
Difficulty: Medium
38) The inventory valuation rule 'the lower of cost and net realisable value' cannot be used with which of these
methods?
39) Under AASB 102, 'the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale' is known as:
40) Under the inventory standard AASB 102, a new assessment of the net realisable value of inventory items is
made:
A) in a general meeting
B) each period
C) weekly
D) every two years
Answer: B
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.8 Apply the lower of cost and net realisable value rule.
Difficulty: Easy
A) The amount of any write-down of inventories recognised as an expense during the period
B) The total carrying amount of inventories
C) The accounting policies adopted
D) All of the above
Answer: D
AACSB: Written and Oral Communication
Topic: 7.3 Inventories
Learning Objective: LO 7.8 Apply the lower of cost and net realisable value rule.
Difficulty: Medium
43) Discuss the disclosures relating to inventory required by AASB 102. Include a discussion on the disclosures
required by not-for-profit entities.
Answer: AASB 102 requires the following disclosures for inventory: (a) the accounting policies adopted in measuring
inventories, including the cost formula used; (b) the total carrying amount of inventories and the carrying amount in
classifications appropriate to the entity; (c) the carrying amount of inventories carried at fair value less costs to sell;
(d) the amount of inventories recognised as an expense during the period; (e) the amount of any write-down of
inventories recognised as an expense in the period in accordance with paragraph 34; (f) the amount of any reversal
of any write-down that is recognised as a reduction in the amount of inventories recognised as expense in the
period in accordance with paragraph 34; (g) the circumstances or events that led to the reversal of a write-down of
inventories in accordance with paragraph 34; and (h) the carrying amount of inventories pledged as security for
liabilities.
AACSB: Analytical thinking
Topic: 7.3 Inventories
Learning Objective: LO 7.8. Apply the lower of cost and net realisable value rule.
Difficulty: Medium
Copyright ©2017 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781488611643/Henderson/Issues In
Financial Accounting/16e
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The Project Gutenberg eBook of Purjehtijat
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Title: Purjehtijat
Language: Finnish
Kirj.
Uuno Kailas
SISÄLLYS:
Rukous
I (Lapsifantasioja)
Mäenlaskua
Sanat
Hiljainen loppulause isämeitään
Tyhmät ja viisaat
II
Nuori Narayana
Eeva
Laulu aallolle
Runo runosta
Laulu sinulle
Adagio
Ensi lumen aikaan
Kesäillan kuje
III
Vanhoille
Suomalainen sonettiparaati
Lehmän häntä
IV
V
Huomispäivä
Olin nuori
Sydän ja Kuolleen meren apinat
Sana
Syyllinen mies
Runo ristiinnaulituista
Paimenet
Me
Minä näen
Lentävän Hollantilaisen näky
Lapsen silmä
RUKOUS.
(Lapsifantasioja.)
MÄENLASKUA.
SANAT.
TYHMÄT JA VIISAAT.
NUORI NARAYANA.
EEVA.
(Else Lasker-Schülerin mukaan.)
LAULU AALLOLLE.
RUNO RUNOSTA.
LAULU SINULLE.
ADAGIO.
KESÄILLAN KUJE.
VANHOILLE.
LEHMÄN HÄNTÄ.