An Overview Of Accounting For Liabilities

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An Overview of the International External Reporting Environment
The Conceptual Framework of Accounting and Its Relevance to Financial Reporting
Theories of Financial Accounting
An Overview of Accounting for Assets
Depreciation of Property, Plant and Equipment
Revaluations and Impairment Testing of Non-Current Assets
Inventory
Accounting for Intangibles
An Overview of Accounting for Liabilities
Accounting for Leases
Share Capital, Reserves and Share Options Employee Bonus Schemes
Accounting for Financial Instruments
Revenue Recognition Issues
The Statement of Comprehensive Income and Statement of Changes in Equity
Accounting for Income Taxes
The Statement of Cash Flows
Events Occurring After the Reporting Date
Related-Party Disclosures
Earnings Per Share
Further Consolidation Issues I: Accounting for Intragroup Transactions
Further Consolidation Issues II: Accounting for Non-Controlling Interests
Further Consolidation Issues III: Accounting for Indirect Ownership Interest
Accounting for Foreign Currency Transactions
Translating the Financial Statements of Foreign Operations
Accounting for Corporate Social Responsibility

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Question 1

Free

True/False

In a constructive obligation where the entity retains discretion to avoid any future sacrifice of economic benefits,no liability should be recognised in the financial statements.

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False

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Question 2

Free

True/False

A necessary condition to recognise a present obligation in the financial statements is that the identity of the party to whom the present obligation is owed must be known.

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True

False

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Question 3

Free

True/False

Executory contracts are within the scope of IAS 37 Provisions,Contingent Liabilities and Contingent Assets.

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True

False

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Question 4

Free

True/False

In IAS 37 Provisions,Contingent Liabilities and Contingent Assets,there is symmetry in the treatment of contingent liabilities and contingent assets where both are required to be disclosed when the contingent event is probable to occur.

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False

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Question 5

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True/False

Entities are only required to record a liability if there has been a past transaction that has created a present obligation to another entity that is expected to result in an outflow of future economic benefits.

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False

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Question 6

True/False

A guarantee provided to a financier for a loan taken out by another entity,where default on that loan is uncertain as at the reporting date,is an example of a contingent liability.

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False

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Question 7

True/False

Some researchers have found that firms can benefit from being in financial distress.

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True

False

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Question 8

True/False

In terms of accounting treatment debentures and bonds are the same thing.

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True

False

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Question 9

True/False

A discount on debentures issued arises when the market required rate of return is less than the coupon rate.

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True

False

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Question 10

True/False

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

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True

False

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Question 11

True/False

Convertible notes may be best described as having characteristics of both liabilities and bonds.

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True

False

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Question 12

True/False

When determining whether a liability exists,the intentions or actions of management need to be taken into account.

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True

False

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Question 13

True/False

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

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True

False

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Question 14

Multiple Choice

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

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a legal obligation only.

a social obligation.

a contractual obligation.

none of the given answers.

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Question 15

Multiple Choice

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

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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.

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.

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.

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.

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Question 16

Multiple Choice

An equitable or constructive obligation arises when:

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Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits.

Management makes a discretionary decision to make a future sacrifice of economic benefits.

Management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned.

Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits and management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned.

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Question 17

Multiple Choice

Examples of equitable or constructive obligations include:

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A state government promises economic support to householders and businesses affected by recent bushfires.It has in the past provided at least this level of support.

Management of a retail store decides to offer compensation to customers as a result of faulty scooters purchased from the store and causing injury.The manufacturers are normally considered liable for this type of fault.

A company that has published policies regarding support for the environment and has in the past rehabilitated polluted sites has identified contamination it has caused in land surrounding one of its production sites.Not correcting the problem with the site will lead to serious difficulties with the local community.

A state government promises economic support to householders and businesses affected by recent bushfires.A company that has published policies regarding support for the environment and has in the past rehabilitated polluted sites has identified contamination it has caused in land surrounding one of its production sites.Not correcting the problem with the site will lead to serious difficulties with the local community.

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Question 18

Multiple Choice

Which of the following is not listed in IAS 1 to determine if a liability should be classified as current?

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If the liability is guaranteed to be settled within 12 months.

If the liability is held primarily for the purpose of being traded.

If the entity does not have an unconditional right to defer settlement of the liability for at least 12 months.

If the liability is expected to be settled in the entity's normal operating cycle.

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Question 19

Multiple Choice

If future cash flows are not discounted the effect in the financial statements is to:

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report amounts of cash outflows that are the same but occur over different time periods as the same amount.

report net cash flows at their future value rather than their present value.

understate the amount of the present obligation.

report net cash flows at their future value rather than their present value and understate the amount of the present obligation.

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Question 20

Multiple Choice

Some research has shown that being in financial distress may not be all bad news for an entity because:

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Investors will see this as an opportunity to buy into a company that can really only improve.

Existing managers will want to be released from their contracts allowing new ideas to be employed.

There will be no requirement to consider the social costs of retrenching employees because the accounting numbers show it is necessary.

It will provide the stimulus to rethink activities that may in turn lead to improved future performance.

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