Question

5. The purpose of the notes to the financial statements is to:
a. Explain any resources and obligations not recognised in the Statement of Financial Position.
b. Provide information meeting the disclosure requirements under national laws or regulations.
c. Disclose risks and uncertainties affecting the entity.
d. All of the above.

6. An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:
a. liability.
b. accrual.
c. provision.
d. contingent liability.

7. The following information relates to Buss Ltd for the year ended 30 June 2016.
 Accounting profit before income tax (after all expenses $300,000
have been included)
 Fines and penalties (not tax deductible) $20,000
 Depreciation of plant (accounting) $40,000
 Depreciation of plant (tax) $100,000
 Long-service leave expense (not a tax deduction until $8,000
the leave is paid)
 Income tax rate 30%
On the basis of this information the current tax liability is:
a. $74,400
b. $78,000
c. $80,400
d. $99,600

8. Which of the following is NOT a feature of intangibles that differentiates them from other assets?
a. They are largely knowledge based assets.
b. Many are not separable items.
c. They often do not have well-defined property rights.
d. None of the above, i.e. they are all features of intangible assets.

9. Mark Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as $720 000. The number of ordinary shares on issue up to 31 October 2015 was 50 000. Mark Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2015.
Basic earnings per share at 30 June 2016 is:
a. $4.80.
b. $6.17.
c. $7.20.
d. $9.60.

10. The bonus issue of shares has the following impact on the equity of a company:
a. total equity increases.
b. total equity decreases.
c. one equity account increases and another equity account decreases by an equal amount.
d. only the amount of issued share capital changes.

Answer 1

Q 5.

The purpose of the notes to the financial statements:

• Notes are the important part of the financial statements. The financial statements contains only the amount, whereas notes give the detail explanation of all the schedules mentioned in the financial statements. For example it explains sources of revenue, various estimates used, note on discontinued operations. Hence point a is correct
• Notes to financial statements include additional disclosure requirement as per under national laws and regulations. For example business segment information, fair value measurements, disclosing uncertainties affecting entities- Contingent liabilities. Hence point b and c is correct.

Hence answer is d-all of the above

Q 6.

Defination of Contingent liability- is

· a possible obligation depending on whether some uncertain future event occurs, or

· a present obligation but payment is not probable or the amount cannot be measured reliably

Hence the answer is D

Q 7.

Not related to accounting.

Q 8.

• Intangible assets are non- monetary assets, without having physical presence. It includes knowledge assets, patents, trademarks. Hence point a is a feature that differentiates from tangible assets.
• An intangible asset may not be separately identified for example in a sale of business

Hence point a is a feature that differentiates from tangible assets.

Intangibles assets have well defined property rights- for example shops operated at airports with license agreement. Hence point c is not a feature that differentiates from tangible assets.

Hence answer is C

Q 9.

Bonus issue is 2 for 1 share.

Therefore Bonus shares will be 50000 x ½ = 25000 shares

Total number shares post bonus = 50000+ 25000 = 75000 shares.

Since company does not received any money on bonus issue nor it generates extra profit, it will be treated as if bonus share were there from the beginning of the period.

So EPS = Profit attributable to shareholders/total number of shares post bonus issue

             = $720000/75000

             = $ 9.60

Hence answer is D

Q 10.

When there is bonus issue:

The paid up equity share capital increases but there is no increase in cash balance as company does not receive any money. The shares are paid from cash reserves. Hence reserves decreases.

Hence the answer is C. – One equity account increases i.e. share capital and another equity account decreases with equal amount i.e reserves.