Question 1

AASB 13 defines fair value measurement as:

Accepted Answer

A)   the price that would be received to buy an asset or received to transfer a liability in an orderly transaction between market participants at the due date.
B)   the price that would be paid to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the due date.
C)   the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
D)   the price that would be estimated to sell an asset or to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 2

Explain in what situations,and why,some provisions should be measured at present values.

Accepted Answer

Some provisions should be measured at pr...

Question 3

Discuss the criteria required to classify a liability as current.

Accepted Answer

Liabilities are classified as current if...

Question 4

Unless the probability of any outflow in a settlement is remote,an entity needs to disclose for each class of contingent liability:

Accepted Answer

A)   the possibility of any reimbursement.
B)   an indication of the timing and amount uncertainties.
C)   an estimate of its financial effect.
D)   All of the given answers must be disclosed.

Question 5

From the following extract of an amortisation schedule pertaining to a compound financial instrument,what is the net liability (assuming the debenture has not yet been repaid) ,at the end of Period 10?   Period  Opening  liability  Effective  interest  Coupon rate  Discount  amortisation  Balance of  discount  Net liability 07360559263945192639455558375000005583768021893197822931978255918750000059187621031937896939378969562738500000627385582939441707\begin{array} { | c | r | r | r | r | r | r | } \hline 	ext { Period } & \begin{array} { c } 	ext { Opening } \	ext { liability }\end{array} & \begin{array} { c } 	ext { Effective } \	ext { interest }\end{array} & 	ext { Coupon rate } & \begin{array} { c } 	ext { Discount } \	ext { amortisation }\end{array} & \begin{array} { c } 	ext { Balance of } \	ext { discount }\end{array} & 	ext { Net liability } \\hline 0 & & & & & 736055 & 9263945 \\hline 1 & 9263945 & 555837 & 500000 & 55837 & 680218 & 9319782 \\hline 2 & 9319782 & 559187 & 500000 & 59187 & 621031 & 9378969 \\hline 3 & 9378969 & 562738 & 500000 & 62738 & 558293 & 9441707 \\hline\end{array} Period 0123​ Opening  liability ​926394593197829378969​ Effective  interest ​555837559187562738​ Coupon rate 500000500000500000​ Discount  amortisation ​558375918762738​ Balance of  discount ​736055680218621031558293​ Net liability 9263945931978293789699441707​​

Accepted Answer

A)   Nil
B)   9 500 000
C)   9 905 582
D)   10 000 000

Question 6

A present obligation,as one of the criteria for recognising a liability,implies:

Accepted Answer

A)   there must be a legal obligation.
B)   a legally binding contractual arrangement between two parties: the entity and another party.
C)   the involvement of two separate parties-the entity and another party-of which the identity of the latter needs not necessarily to be known.
D)   the involvement of two separate parties-the entity and another party-of which the identity of the latter must be known.

Question 7

Edgar Ltd issues $7 million in 6-year,10%,semi-annual coupon debentures.The rate of return required by the market is 8% per annum.What is the journal entry to record the first payment of interest assuming using the effective-interest method to amortise any discount or premium (rounded to the nearest dollar) ?

Accepted Answer

A)   Dr Interest expense 287306Dr Debenture 62694Cr Cash 350000\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & 	ext { Interest expense } & 287306 & \\hline \mathrm { Dr } & 	ext { Debenture } & 62694 & \\hline \mathrm { Cr } & 	ext { Cash } & & 350000 \\hline\end{array}DrDrCr​ Interest expense  Debenture  Cash ​28730662694​350000​​ 
B)   Dr Interest expense 412694Cr Debenture 62694Cr Cash 350000\begin{array} { | r | l | r | r | } \hline \mathrm { Dr } & 	ext { Interest expense } & 412694 & \\hline \mathrm { Cr } & 	ext { Debenture } & & 62694 \\hline \mathrm { Cr } & 	ext { Cash } & & 350000 \\hline\end{array}DrCrCr​ Interest expense  Debenture  Cash ​412694​62694350000​​ 
C)   Dr Interest expense 350000Cr Debenture 43722Cr Cash 306278\begin{array} { | r | l | r | r | } \hline \mathrm { Dr } & 	ext { Interest expense } & 350000 & \\hline \mathrm { Cr } & 	ext { Debenture } & & 43722 \\hline \mathrm { Cr } & 	ext { Cash } & & 306278 \\hline\end{array}DrCrCr​ Interest expense  Debenture  Cash ​350000​43722306278​​ 
D)   Dr Interest expense 306278Dr Debenture 43722Cr Cash 350000\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & 	ext { Interest expense } & 306278 & \\hline \mathrm { Dr } & 	ext { Debenture } & 43722 & \\hline \mathrm { Cr } & 	ext { Cash } & & 350000 \\hline\end{array}DrDrCr​ Interest expense  Debenture  Cash ​30627843722​350000​​

Question 8

One recognised approach to reducing the level of debt that has been adopted in the past was to:

Accepted Answer

A)   attempt to report the debt as equity, often in the form of preference shares.
B)   create reserves and draw on them later as a source of funding.
C)   treat as many liabilities as possible as provisions.
D)   record liabilities as an increase in cash and a decrease in revenues.

Question 9

The present obligation component of a liability must be based on:

Accepted Answer

A)   a legal obligation only.
B)   a social obligation.
C)   a contractual obligation.
D)   none of the given answers.

Question 10

Spoton Co Ltd issues $5 million in 2-year,8%,semi-annual coupon debentures to the public.The market required rate of return is also 8%.The money is received on application and the debentures are allotted on the same day: 30 June 2013.What are the journal entries to record (a) the receipt of funds and allotment of debentures on 30 June 2013,(b) the payment of interest on 31 December 2013 and (c) the redemption of the debentures on 30 June 2015?

Accepted Answer

A)  
B)  
C)  
D)

Question 11

What is the treatment of contingent liabilities in the financial statements?

Accepted Answer

A)   Contingent liabilities are to be recognised as a separate category in the statement of financial position, with a clear note disclosure of the factors that constitute the contingent event for each material contingent liability.
B)   Contingent liabilities are required to be disclosed in the notes to the financial statement when the amount of the obligation cannot be measured with sufficient reliability.
C)   Material contingent liabilities only are required to be recognised in the financial statements under AASB 137.
D)   Contingent liabilities are to be disclosed in the notes to the accounts in categories that reflect their nature and possible timing.

Question 12

Which of the following provisions satisfy the requirements to be recognised as a liability under AASB 137?

Accepted Answer

A)   provisions for repairs and overhauls
B)   provisions for warranties
C)   provisions for maintenance
D)   provisions for refurbishment costs

Question 13

Discuss the substance-over-firm approach in AASB 132 Financial Instruments.

Accepted Answer

The substance-over-form approach in AASB...

Question 14

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,differentiate provisions from accruals and provide one example for each type of liability.

Accepted Answer

Provisions, accruals, and contingent lia...

Question 15

If liabilities are disclosed as current on the basis of the entity's operating cycle,and this cycle is greater than 12 months it should:

Accepted Answer

A)   adjust the statement of financial position for a 12 month period.
B)   disclose the length of the operating cycle.
C)   apply the 12-month test.
D)   None of the given answers are correct.

Question 16

Outside the situation where specific types of provisions are covered in standards,a provision exists when and only when:

Accepted Answer

A)   The entity has a present legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain.
B)   There is a legal or constructive obligation to make a future sacrifice of economic benefits within the entity as a result of past transactions or other past events, the amount or timing of which is uncertain.
C)   The entity has a present legal obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain.
D)   The amount, timing and entity to whom the obligation to sacrifice future economic benefits as a result of a past legal or constructive obligation are unknown.

Question 17

A debenture will be issued at par value:

Accepted Answer

A)   because that is the offer price; if the rate offered is too low the offer will be under-subscribed, so those who take it up will receive more interest.
B)   on most occasions, because management is careful to issue the debentures at an amount close to the market rate.
C)   on those rare occasions when the coupon rate is the same as the market rate.
D)   on those occasions when the offer rate is equal to the coupon rate.

Question 18

An entity shall classify a liability as current when it holds the liability primarily for the purpose of trading.

Accepted Answer

A) True 
 B)False

Question 19

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets some present obligations are allowed to be disclosed in the notes to the financial statements.

Accepted Answer

A) True 
 B)False

Question 20

The market will only pay a premium for debentures if the par value of those debentures is lower than the market interest rate.

Accepted Answer

A) True 
 B)False

Exam 10: An Overview of Accounting for Liabilities

AASB 13 defines fair value measurement as:

Correct Answer
verified

What is the treatment of contingent liabilities in the financial statements?

Correct Answer
verified

A debenture will be issued at par value:

Correct Answer
verified

Unless the probability of any outflow in a settlement is remote,an entity needs to disclose for each class of contingent liability:

Correct Answer
verified

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets some present obligations are allowed to be disclosed in the notes to the financial statements.

Correct Answer
verified

One recognised approach to reducing the level of debt that has been adopted in the past was to:

Correct Answer
verified

Explain in what situations,and why,some provisions should be measured at present values.

Correct Answer
Answered by ExamLex AI
Some provisions should be measured at pr...
View Answer

If liabilities are disclosed as current on the basis of the entity's operating cycle,and this cycle is greater than 12 months it should:

Correct Answer
verified

The present obligation component of a liability must be based on:

Correct Answer
verified

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,differentiate provisions from accruals and provide one example for each type of liability.

Correct Answer
Answered by ExamLex AI
Provisions, accruals, and contingent lia...
View Answer

An entity shall classify a liability as current when it holds the liability primarily for the purpose of trading.

Correct Answer
verified

Correct Answer
verified

A present obligation,as one of the criteria for recognising a liability,implies:

Correct Answer
verified

Correct Answer
verified

Which of the following provisions satisfy the requirements to be recognised as a liability under AASB 137?

Correct Answer
verified

Discuss the substance-over-firm approach in AASB 132 Financial Instruments.

Correct Answer
Answered by ExamLex AI
The substance-over-form approach in AASB...
View Answer

The market will only pay a premium for debentures if the par value of those debentures is lower than the market interest rate.

Correct Answer
verified

Correct Answer
verified

Outside the situation where specific types of provisions are covered in standards,a provision exists when and only when:

Correct Answer
verified

Discuss the criteria required to classify a liability as current.

Correct Answer
Answered by ExamLex AI
Liabilities are classified as current if...
View Answer

Exam 10: An Overview of Accounting for Liabilities

AASB 13 defines fair value measurement as:

Correct AnswerverifiedShow Answer

What is the treatment of contingent liabilities in the financial statements?

Correct AnswerverifiedShow Answer

A debenture will be issued at par value:

Correct AnswerverifiedShow Answer

Unless the probability of any outflow in a settlement is remote,an entity needs to disclose for each class of contingent liability:

Correct AnswerverifiedShow Answer

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets some present obligations are allowed to be disclosed in the notes to the financial statements.

Correct AnswerverifiedShow Answer

One recognised approach to reducing the level of debt that has been adopted in the past was to:

Correct AnswerverifiedShow Answer

Explain in what situations,and why,some provisions should be measured at present values.

Correct AnswerAnswered by ExamLex AISome provisions should be measured at pr...View AnswerShow Answer

If liabilities are disclosed as current on the basis of the entity's operating cycle,and this cycle is greater than 12 months it should:

Correct AnswerverifiedShow Answer

The present obligation component of a liability must be based on:

Correct AnswerverifiedShow Answer

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,differentiate provisions from accruals and provide one example for each type of liability.

Correct AnswerAnswered by ExamLex AIProvisions, accruals, and contingent lia...View AnswerShow Answer

An entity shall classify a liability as current when it holds the liability primarily for the purpose of trading.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A present obligation,as one of the criteria for recognising a liability,implies:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following provisions satisfy the requirements to be recognised as a liability under AASB 137?

Correct AnswerverifiedShow Answer

Discuss the substance-over-firm approach in AASB 132 Financial Instruments.

Correct AnswerAnswered by ExamLex AIThe substance-over-form approach in AASB...View AnswerShow Answer

The market will only pay a premium for debentures if the par value of those debentures is lower than the market interest rate.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Outside the situation where specific types of provisions are covered in standards,a provision exists when and only when:

Correct AnswerverifiedShow Answer

Discuss the criteria required to classify a liability as current.

Correct AnswerAnswered by ExamLex AILiabilities are classified as current if...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
Some provisions should be measured at pr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
Provisions, accruals, and contingent lia...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
The substance-over-form approach in AASB...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
Liabilities are classified as current if...
View Answer